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What do you guys (and gals) think about a strategy of buying and selling range bound stocks during market dips and surges?
I'm sure I'm not the only one to think of this, has anyone tried this before or know of others who have and what have been the results?

as an example, let's take TRP (Trans Canada Pipeline).
i have observed this stock for a couple of years and hold some long-term as well.
This stock is mostly range bound.
Say between $31 and $36.
So during market dips (like this Tues and Wed) buy low ($33 for example) and after a few days/weeks when it recovers (say to $35), sell.

doing this requires observation of the price patterns of the stock to determine the range.
also, i'd consider this only for stocks that are stable and not in risk of a major disaster like bankrupcy or takeover.
and if a particular deal doesn't pan out (like if TRP falls below $33) wouldn't mind holding it for an extended period of time.

what do ya'll think?
can this work or is this a receipe for losing money?
 

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Obviously it can work. Whether it will work will depend on how lucky you are. Do you feel lucky?

Sorry about that last sentence, I kind of had a Clint Eastwood moment there. Anyway, what tends to happen with most people that trade stocks is they lose on one end or the other. They will buy a stock at $30, sell it at $35, get lucky and get to buy it again at $30, etc. This can go on for one, maybe two times, but usually by at least the 3rd trade, your luck will run out. You will sell at $35, just to watch the stock go on to $40, $45 or $50. Or you will buy at $30, and watch it go to $25, $20, etc.

Now a lot of people will not count the 1st issue (selling a stock that continues to rise) losing money, since from an accounting perspective, they didn't. But what I find is I need to ride the winners well in my portfolio to make up for all my losers. If I sell my winners for only a 15% gain, it won't make up for all the losers I have that go down more than that. And of course, if anything ever does happen to this company, you are pretty much saying that you will buy it just before it crashes.

That is my opinion. I've tried it in various forms. Made a little money on some trades, lost a little on others, but found overall, it was a drag on the portfolio. But ... you may get lucky.
 

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Why not just buy TRP and hold for the rising dividend income?
Over the long haul as they dividend income goes up, then so to will the stock price. Assuming you buy it at a reasonable price.

You should read "active value investing, making money in rangebound markets".

This book covers what you want to know.
 

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I trade warrants like this. I buy them low and sell them high.

You know what my biggest problem is?..... greed

I recently bought PCD.UN warrants at 15 cents then the stock shot up to 12.40. I had put my sell price in at 30 cents but I got greedy and moved the sell price to 45 cents. That day there was a big buy and the price on the warrants went up to 35 cents. But I missed out on my exit strategy. I like to double my money. Now I'm back down to 30 cents again on my selling point and the warrant is trading at 20 cents.

So if you want to trade in and out that's fine. I set my price the day I buy and usually I just wait for it to trade. But this time I went and got greedy and I'm just waiting for it to go up again.
 

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can it work ? yes, absolutely.

it's not a question of luck. It's a question of chart analytics, volatility analytics and probability projections. To a certain extent the band trader is gaining from the sale of volatility.

what would make the game more interesting & more profitable would be to identify the wider ranges for the more volatile stocks. Trading within the band would then become more profitable. There are many examples, but classics close to home could include potash, CNQ, and possibly RIM for some. I would gladly trade the first 2 myself, on the grounds that i believe in long-term growth for ag products and energy, but personally i would not choose RIM, as this excellent company could be up against an exterminator-competitor (and we all know who that is.)

it's less than a hop-skip-and-jump to deploy option strategies that, essentially, trade the band. It's also possible to have one's cake and eat it too. That is, a person who already owns TRP could sell out-of-the-money call options against his long stock (a covered call, aka a covered write) while at the same time selling out-of-the-money put options (these would be uncovered puts.) This strategy is called a strangle. A conservative choice would be strike prices at the extremities of the band, or outside the band, with the call positioned at the high extremity and the put at the low. A riskier choice would be strike prices inside the band.

it's another high jump to deploying naked or uncovered option strangles, without the stock, but since these are for level 5 traders i won't get into them here.

in the stock-plus-strangle approach, the investor harvests both the dividends and the capital gains from the continued option sales.

in the stock trading approach, the investor risks to miss one or more dividends while he is out of the stock.

imho, the stock you've mentioned, TRP, is perfect for a pilot project. It's a conservative low-beta stock, meaning its options do not fetch high premiums, but on the other hand this company is less volatile than many, it's probably never going to go bankrupt, and it sports a healthy dividend based on pipeline revenues that are all contracted years in advance.

as you probably know, many who hold a stock such as TRP long-term as a core position also trade another bunch of shares around the core. This is another strategy that you could consider. (Remember to keep adjusting your cost base every time you buy.)

something to keep in mind is that stocks tend to fall immediately following an earnings announcement. Almost invariably the options are punished more than the stocks. A recent example has been manulife during the past 2 days. A whiff of disappointment over earnings was followed by a near-massacre in share price. This will be a stock to revisit next tuesday.
 

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What do you guys (and gals) think about a strategy of buying and selling range bound stocks during market dips and surges?
I'm not fond of the idea, as it's generally opposite to my investing style.

I purchase shares as though I were becoming a part-owner in the company, and as such, I look for stocks which are well-priced. I consider a stock to be well priced not because it's trading close to some historic low, but because its fundamental metrics (like P/Book, P/Sales, P/Earnings, etc.) are at or below limits which are generally recognized as being "good deals".

(I don't look at graphs of stock prices -- I prefer to go straight to the balance statement in order to understand what I'm buying. I view buying stocks like buying a pair of shoes. For example, if I were selling a pair of shoes for $100, what would it matter to a prospective buyer if someone had bought one pair at $89, and another person had bought a pair at $110? There will always be people who got a deal, and those who overpaid because they were anxious to own my shoes. A more reasonable approach, in my mind, is for a buyer to look at the balance sheet, ascertain that I spent $30 in materials and $20 in labour, and then make an offer for the shoes based largely on these fundamental considerations, while perhaps attributing some room for future resale value and what not.)

When I look at CNQ, I see a company that's generally "fairly-valued", and not really a great deal based on Graham/Dodd criteria.

P/Book: 2.02 (versus < 1.5)
P/Sales: 4.14 (versus < 1)
Current ratio: 0.8 (uh-oh!)
P/E: 13.4 (not terrible)
Debt/Equity: 0.55

(Source)

If I owned CNQ, I'd probably still be holding it for the dividend. But I wouldn't be rushing to add to my position.

K.
 

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I trade warrants like this. I buy them low and sell them high.

You know what my biggest problem is?..... greed

I recently bought PCD.UN warrants at 15 cents then the stock shot up to 12.40. I had put my sell price in at 30 cents but I got greedy and moved the sell price to 45 cents. That day there was a big buy and the price on the warrants went up to 35 cents. But I missed out on my exit strategy. I like to double my money. Now I'm back down to 30 cents again on my selling point and the warrant is trading at 20 cents.

So if you want to trade in and out that's fine. I set my price the day I buy and usually I just wait for it to trade. But this time I went and got greedy and I'm just waiting for it to go up again.

again i see ur point but then again how would you be able to trade on such thin market.
i checked the price history and the trading volume is really low.
please correct me if i am wrong
thks
 

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can it work ? yes, absolutely.

it's not a question of luck. It's a question of chart analytics, volatility analytics and probability projections. To a certain extent the band trader is gaining from the sale of volatility.
Why would you think you have a chance against huge multinational companies that have access to supercomputers, microsecond trading, some very advanced mathematics, not to mention an army of very smart people who have spent years in school studying this stuff?

This stuff worked great in the late 90's. Just buy a tech stock, based on its technical analysis wait a few months and you were sure to double your money. Worked great till everything crashed. Buying a stock/company based on anything but the fundamentals of the company you are just asking for it.
 

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Why would you think you have a chance against huge multinational companies that have access to supercomputers, microsecond trading, some very advanced mathematics, not to mention an army of very smart people who have spent years in school studying this stuff?

This stuff worked great in the late 90's. Just buy a tech stock, based on its technical analysis wait a few months and you were sure to double your money. Worked great till everything crashed. Buying a stock/company based on anything but the fundamentals of the company you are just asking for it.
Huge multinational financial entities have bigger fish to fry than individual companies these days. Today, the big boys have organized bear raids on the financially weak countries of the world.

And those who practice technical analysis may very well have less volatile portfolios since one principle is to cut losses very early. You won't see a pure technical analyst trader averaging down into a company all the way to bankruptcy.

Knowledge of both realms doesn't hurt.
 

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steve it's always entertaining when someone who feels left out of the game turns vicious.

you are so right about your fictional multinationals with supercomputers and armies of very smart people. Long term capital was a love story, so pretty in pink. Bear and lehman were pulp romances. The queen herself had a crush on barings bank. And ubs, for centuries the dean of derivatives trading in europe, is going to live happily ever after this saint valentine's day. Right.
 

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If you are thinking of trading the range, I would suggest that you ensure that you have confidence in your ability to read candlestick charts and use technical analysis to determine your entry and exits - and use stop loss orders. Ranges have a way of changing or breaking down.

What do you guys (and gals) think about a strategy of buying and selling range bound stocks during market dips and surges?
I'm sure I'm not the only one to think of this, has anyone tried this before or know of others who have and what have been the results?

as an example, let's take TRP (Trans Canada Pipeline).
i have observed this stock for a couple of years and hold some long-term as well.
This stock is mostly range bound.
Say between $31 and $36.
So during market dips (like this Tues and Wed) buy low ($33 for example) and after a few days/weeks when it recovers (say to $35), sell.

doing this requires observation of the price patterns of the stock to determine the range.
also, i'd consider this only for stocks that are stable and not in risk of a major disaster like bankrupcy or takeover.
and if a particular deal doesn't pan out (like if TRP falls below $33) wouldn't mind holding it for an extended period of time.

what do ya'll think?
can this work or is this a receipe for losing money?
 
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