I have a summarized blog post where I am listing all my project/business ideas as I think of them. This list is fluid and will be updated as needed. This specific post is the details of Idea #13.
I was thinking about this recently. So there is definitely money to be made in the stock market if you know what you are doing. I strongly believe that if you follow a company in detail and keep an eye on how the company is doing, there is a good chance you can bet with some level of comfort on that company as long as you don't over do it. For example, I am a customer of Macys for many years and absolutely love them. Why ? Because they have great products at awesome prices and their customer service is always excellent. Whenever I have walked into a Macys store, I have never felt uncomfortable and always find great things. Whatever their business model is, it really works. Now, does that make it enough to buy the stock ? Perhaps not. But I am surely going to keep them as a major contender for my stock buying. Actually, I bought a few Macys stock in 2008 at about $23 a pop and today it is about $55 a pop. so far, my bet on Macys(M) is paying off.
I also am not an expert who can look at crazy technical charts, analysis and what not and make a decision to buy a stock. I cannot just rely on numbers and history. Again, a stock's price depends on how well the company is doing and how well will it potentially do in the future as well. I am probably sounding too naive but thats how I am rolling if I do.
Here is my idea. There are already multiple brokerages offering buying/selling on their platform. They let you do limit orders, stop loss etc but there is no platform that lets you do the following:
Automated Trading bot for small Profits
Step1 : Create a hand picked portfolio of companies that you are interested in. Of course, this step is the main driver behind the entire idea. So we need to talk about it a lot more on how to pick great stocks but that will be a whole post by itself.
Step 2: For this portfolio or a subset of it, create "small profit cap". The idea is similar to a cap trade where once interest rate hit a certain ceiling, the buyer of the cap receives a payment from the seller. In this case, once that "small profit cap" (say 3%) is reached for that "subset of portfolio", the system should trigger a sale for any profit over the initial purchase price.
We can write the following python code
small_profit_cap = 0.03 # 3%
stocks_to_sell = 
commision = $x
foreach stock in Portfolio-X:
curr_unrealized_gain = calc_gain(stock)
if curr_unrealized_gain >= (small_profit_cap + x):
num_shares_to_sell = calc_shares_to_sell(stock)
curr_price = # Make a call to API
gain_amt = curr_price - purchase_price
gain_pct = (gain_amt/purchase_price)*100
pass # Need to come back to this
Step 3: Now we have a
stocks_to_sell list that can now be executed in real time which will be another major task of this trading system.
Of course, I realize that there are lot of assumptions and generalizations being made but my idea (at least on paper) is simple. Buy a hold the stock until it gives you that "small profit cap" and once it hits that mark, sell just about enough number of shares to make that small profit
Step 4: Finally, re-balance the Portfolio by buying shares of the company enough to go back to the original balance on purchase.
- "Small profit cap". I used this term above but let me explain now. Basically, we want to create stream of fixed income on a monthly basis and in order to achieve this, the algorithm will sell stocks in a given portfolio once it hits a certain profit cap. This will not be unrealistic like 10% but I suggest 3%. Still better than any checking accounts out there in the USA or even a CD.
Whenever my stocks make a gain of 3% within the time period, I sell it and make the extra 3% as a profit.
- No Greed. Yes, the idea is to always keep the initial investment intact. So If I started with $100,000, I always want to hold stocks worth at least $100,000. Anything on top is my "small profit cap" that I will make by selling the stocks.
You might ask though "what if the stock value goes down which it will for sure at times". Well, then the idea is to hold those until the market goes back up. One exception: sudden change in a company which makes the stock a no-go. Then sell fast and get out. But this should be very rare if you pick and choose your stocks wisely.