This is why my 401K is 85% cash right now

I hate that pit of the stomach feeling, which why I sold everything in my 401K within the last weeks.

You could see this train coming...

The only thing I have left in my 401K portfolio is the HPQ stock fund (I work for HP so usually have some HPQ stock).

Interestingly, I just re-bought HPQ, after a 15% drop in the last two months and lackluster earnings report last week.  It's direction in theory will be up, as it is already oversold.

FBMPX 5.2% in 34 days

FSCSX 4.6% in 34 trading days

FPHAX with 5.6% in 34 days

Nice trade that tracked pretty well to plan, with 5.6% profit in 34 trading days.

I was especially happy of how the trade conformed to my plan of buying at RSI 20 and selling at RSI 80. These upper and lower limits are indicated by the yellow lines on the RSI study.

According to Investopedia, Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset. 

Stocks are vibrational. The follow a general trend, and then vibrate above it and below it. If they go too high, they pull back. RSI measures the strength of the pull. It works a little like bollinger bands with less guesswork.

In my words, it tells you how strong the rubber band is pulled away from the longer term trend. If RSI is under 20, or over 80, a spring back is likely.  If its over 90, sell for sure. Under 10, and it's a once in a year buying opportunity in mutual fund. Just be careful, RSI will still oscillate even when the trend is long term down.

 I recently adjusted my RSI settings to be more conservative. They were previously a very aggressive 10 and 90, which means I was missing too many opportunities at the bottom end and waiting to long at the top end.

Note that I use an RSI interval of 5 days. I experimented with this interval to try and get maximum correlation with the price variation. I first added an RSI-7 study to my trading layout after attending a seminar at the Online Trading Academy.   I prefer 5 as trends are more visible.

The blue dashed lines are my rough trend lines, the green dotted line the actual trade.

Annotating graphs is a way to clarify your thinking and the rules that you are trading by. It takes the emotions out and lets you treat fine tune your technical analysis approach.

You can see on the graph below, RSI is giving a much clearer signal than anything else about when to enter and exit the trade. If you had timed each oscillation strictly using the 20/80 rule, you would have made around $6 per share profit while the overall stock moved only about $2.50. Plus, your money would have only been invested about 60% of the duration of the 'buy and hope' investor.

FSDPX (finally!) with 1.3% and 5.5% profit

This was a long complicated exit strategy to get myself out of a bad trade.

The original position was open at $85.81. This was a losing trade for a long time by my standards. This position closed only at a 1.3% profit because of a dividend payment. The dividend was partly what caused the steep dropoff in price in October.

In between was another profitable trade from $80.12 to $83.56. (4.3% in 26 trading days)

With a big loss on the original trade, I bought back at $77.27 to try and neutralize the loss. Buy timing was indicated by RSI at 18, a bounce off the lower bollinger band. In hindsight a little early.

The final trade ended going up nicely, with 5.2% profit in 41 trading days.  

RSI on the daily chart is at 97, so expect this to drop back this week. 

I think I will stay clear of this fund for a while. The whole thing was a bit exhausting.1

FSHOX 4.8% in 30 days

This trend may continue all the way up to the upper bollinger band....or it may not. Volume indicates the trend has still more to run, but with a RSI of 80 and such a strong run this week, it may drop off just as sharply.

Closing at the top of a big green candle with a nice profit for 30 trading days. 

Expect this stock to ease off tomorrow before it decides what next week will bring.

FSPHX 4.5% in 26 days

The market is in a schizophrenic mood. Wild swings yesterday and today.

Taking profits so I can show some book some profits to January... Daily chart (not shown) shows a potential further dropoff.

Closing FWRLX 3.9% in 31 trading days - too much volatility

Closing. Way too volatile for a mutual fund. Still, 3.9% in 31 trading days is not bad. Missed two obvious sell points because I was not paying attention to the daily chart. This fund trades more like a stock than a mutual fund.

Well, 7.9 % since August is not bad on a fund that is overall in a downtrend.

Trading Results Heat Map

Every trade under 26 trading days (about 30 calendar days) was profitable

On a profit per day basis, only 1 trade held longer than 30 days was more profitable than every trade held for 30 days or less

Conclusion: Even when the dollar value of the profit is not so high, it is more effective to use capital for short term trades, assuming all your capital is being utilized

If you have money sitting around not invested, then it may not being used most effectively.

The catch is finding enough opportunities to make short term trades successful.

In a oscillating market, often the profit potential of an individual cycle will be equivalent to 5-6 times the long term gain.  Meaning, a fund that shows a long term trend in one year of 5%, may have many single cycles of 5%.

Trading an individual cycle will usually be better than the long term trend in terms of efficient use of capital