Wednesday, May 16, 2018

Taking Advantage of Volatility

"Buy the dips, sell the rips." ~ Wall Street Adage

With the current volatility, I have started buying additional shares of my core holdings to trade.  To note, I am not selling my core holding, which I plan to hold through the volatility.

So when one of my holdings dips, I buy an additional small position.   When it rises approximately 10%, I sell the small position.  Then I wait for it to dip again.   With multiple holdings, I can rotate as different sectors dip at different times. 

Normally, the cost of transactions would prevent me from making small trades of around $100-$200.   However, I was given free trades in two of my brokerage accounts, which allow me to make the small trades commission free.  Thus, my small profit is not eliminated by the commission charge.

I expect the market will continue to be volatile the rest of 2018, allowing me to "buy the dips, and sell the rips" with small trades.

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This is not financial or investment advice. Please consult a professional advisor.

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pfstock said...

My experience is that different investors may have widely divergent definitions of a "small position". I do something similar, but rarely add additional positions unless it can improve my cost basis.

Do you keep your small positions in a separate account from your core holdings? In any case, how do you track and avoid wash sales?

Super Saver said...

Apologies, I'm behind in responding to comments.

I usually try to sell positions that have gains, so I don't have to worry about wash sales. If I'm selling at a loss, I usually wait at least the minimum 31 days from the last purchase.

About 2 months ago, I started keeping the small positions in a separate account. That way, I feel it is OK to sell, even for a small 10-20% profit.