Chasing The Tiger Trade, Part 3: Assembling The ‘Wheel’

  • December 18, 2002
  • Selwyn Gishen


Hello again, fellow Tiger trappers. We ended
the discussion last week on how I found that the components of a trading
strategy were all related. I think this point is so important that I ask for
your indulgence to let me repeat it. Risk to reward is
affected by size, which is affected by volatility, which affects selection,
which also affects how you choose your timeframe. They’re all
related.

Selecting the right time frame therefore means that the timeframe chosen is
appropriate for the total strategy which, of course, must take into account your
objectives. Hence your setup; stock selection, risk control and opportunity is
all dependent on the timeframe selected. 

 

Time frame is where
the “rubber meets the road.” This is true because while I may be prepared to
take a risk of losing 1% of my equity and using up 25% of my buying power (the
metaphorical gun powder), I am only comfortable if I do this in the time frame I
think I can control. I cannot control the markets, but I can control myself, and
controlling “myself” means taking ACTION when
action needs to be taken.

 

I find that the
issue of timeframe is the starting point for assembling the next four components
of my strategy, namely the concept, the
selection, the
reward to risk and finally the exit and entry
setup.  For the first example, let’s look at a “SWING”
trade. By swing I mean a trade that will probably last longer than one or two
days.  One of the stocks that often pops up on my scan which finds large travel
range with sufficient liquidity, is KLA-Tencor
(
KLAC |
Quote |
Chart |
News |
PowerRating). KLAC is a
semiconductor company that has good fundamentals in the most important tech
sector — chips. You have all heard the expression “when the chips are down,”
which illustrates a truth that tech ain’t going nowhere while the chips are
down. Â