From signal to plan

Knowing what a play says is one thing. Using it without hurting yourself is another. This lesson covers how people who use plays like these tend to set things up. It's general education, not advice for your situation.

Decide what the play is for

The history on Be The Puck says trend plays are mainly a seatbelt: they tend to limit losses in big crashes and give up some growth the rest of the time. Mean-reversion plays are a different tool: frequent small trades that need low costs and a tax-sheltered account. If you expect any play to beat the market every year, the evidence says it won't.

Core and satellite

Many investors split their money in two. A large core is simply held for the long run. A smaller satellite, say 20 to 40%, follows a play. If the play goes through a bad stretch of whipsaws, most of the money is unaffected; if a crash comes, the satellite steps aside.

Check on the close, act once

Pick a play and check it only when it checks: after the daily close, on Friday, or at month-end. Ignore intraday moves. Be The Puck's next-move level tells you in advance what close would change the call, so you can set a price alert and stop watching the screen.

Position sizing

How much goes into each holding matters more than which play you use. A common habit is to cap any single stock at a small share of the portfolio, and to keep speculative names, like the micro caps on Be The Puck, smaller still. The Turtles sized every position by its ATR so that each one risked about the same amount. No play can protect you from a company that drops 80% overnight on bad news.

Taxes in Canada

In a regular, non-registered account, every sale is a taxable event: a gain creates a capital gains bill, and a play that switches ten times a year creates ten of them. Two Canadian accounts avoid this:

• A TFSA (Tax-Free Savings Account): growth and withdrawals are tax-free, so switching in and out has no tax cost.
• An RRSP (Registered Retirement Savings Plan): contributions are deductible and growth isn't taxed until you withdraw, so trades inside it don't create a bill along the way.

Watch the superficial loss rule in a regular account: if you sell at a loss and buy the same stock back within 30 days, before or after, the Canada Revenue Agency won't let you claim the loss yet. Fast plays that sell and re-buy can run into it. Check the details with an accountant.

Write it down

Before you start, write the play, the stock, the account and the amount on one line. Each time the call changes, note the date and price. A short log is what keeps you following the play during the long stretches when it lags, which is exactly when most people give up.