Rules for Giant Chinese State-owned Stock

Oct 16, 2014

Yesterday was a lucky day for me. The news of Qualcomm agreed to buy CSR in cash pushed my only UK stock 30% higher. And Air China (SH601111), my only heavily owned Chinese A stock at this time, rose 10% to the max of changes allowed in a trading day in China.
I have been trading stocks in US market since year 2000. It is never a good investment for me. I always sell a stock as soon as it starts to rise and watch it gets higher and higher for a long period, but hold stock for years when in deep loss. After my green card was voluntarily given up in June this year, as no longer needed to worry about tax, I have been thinking of selling my CSR stocks because it rose a lot in recent years. But my past experience taught me it mostly probably would be another bad big decision again. Finally, thanks Qualcomm for making the choice for me.

  1. My Chinese A stock account was opened in 2012. Unlike the flat rate trading fees in US, Chinese brokers charge by amount. For example BOCI charge me 0.075% of the total amount traded, with 5RMB minimum. This was a good start for me. I changed my trading style, stopped making big decision, and made my 1st trading rule:
    Only do small trade. For stock price over 6.66, trade 1000 shares a time. For stock price between 3.33 and 6.66, trade 2000 shares. And 3000 shares for stock price between 2.22 and 3.33.
  2. I was a day trader for some time in year 2000. Not only I lost money during that period, I suffered again when I was filing my tax return the next year, filling endless selling records one by one. Later I learned to trade more patiently. In US market I can place an order valid for 3 months, but In China only valid for the current day, so here goes my 2nd rule:
    Place orders right after midnight, never change them during day trading time. Place buy order at support price and sell order at resistance price according to daily Sina data.
  3. As I have not been able to train myself to cut loss short in so many years. I decided to focus my Chinese stock portfolio on those giant state-owned companies, so I can hold them with peace of mind when market is bad. And I use the Shanghai Stock Exchange Composite Index (SHCOMP) to guide my 3rd trading rule:
    Sell 50,000RMB of stocks with each 100 points of SHCOMP gain, and because I am accumulating the position at current period, buy 50,000-100,000RMB with each 100 points of loss.
  4. I use the 4th rule to lock profit:
    With an individual stock, when SHCOMP (3rd rule) is going up, place a sell order (1st rule) if the resistance price (2nd rule) is 5% more than the last bought price at first, then keep selling if the resistance price keeps the same or going up, until the total stock position meets the 3rd rule. And when SHCOMP is going down, place a buy order if the support price is 5% less than the last sold price at first, then keep buying if the support price keeps the same or going down, until the total position meets the 3rd rule.

I wish to get an average of 10% annual return based on those trading rules, hope it is real in the future.
Just like I'd never gone, I knew the song. -- La Isla Bonita
Screen shot of my Chinese A stock portfolio as of Oct 16 2014

2015 Summary

Jan 3, 2016
Full of hope, starting to record my 2016 XOP and SZ162411 arbitrage data.
Screen shot of my 2015 XOP and SZ162411 arbitrage data
This could be Heaven or this could be Hell -- California Hotel

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