# Fear and Greed



## suzanne (6 February 2005)

Hi everyone,

I just wanted to thank everyone for all the interesting and helpful information on this forum, some of which is very entertaining - all the bitching eh. Ha ha. 

I just wanted to share with you my first decent trades. Previously I was a bit of an investor, based a bit like Tech/a system, where I concentrated on good fundamental systems to select shares and keeping them for longer terms ie, 2 years with shares prices rising 50% to 200%, But this doesn't bring in the bacon today. 

After reading this forum and the monthly share pick, I noticed that a lot of the people here, as Tech/a mentioned previously, tend to trade the small stocks eg around the 20c. So I started looking at these and thought  - what a risk. Tech/a have you decided to get back into these stocks as you mentioned previously??

But due to necessity I threw Warren Buffet ideals out the window and decided to try the 'trader' hat on. Armed with Bedford, Huntley and Guppy ideas I decided to have two accounts - one for the investor and one for the trader.

Firstly as everyone here and on sharescene were going on about AZR , I decided to jump in but I fear too late at 21c, and then it started to fall and I thought here goes. But anyway it is still hanging in there. Fear held me back till too late. 

As I have read constantly fear and greed can be your downfall. They nearly were. On Monday I was just watching MCC waiting to re - enter after a pullback, where I made a 20% profit previously and I saw someone buy 1 million dollars worth and I thought OK - if they are willing to risk that much they must know something I don't know. So I bought in at 4.95 with a sell price of 5.45 in mind.

On Wed the price went up to 5.95 in the afternoon and I was greedy and thinking it might go up more- so I waited and then put in a sell order for 5.95. But it fell back to 5.58 I think and I thought why don't you buy in again at 5.58 and profit on the way back up. But fear got the better of me as I didn't know where it was going to go. On Thursday I was ready to sell at 5.75 and nearly changed my sell order. But I left it at 5.95.

As it was, on Friday it went up to 6.10 I think, but I was out. If I was home I may have tried to change my order and go for more money. But when I got home I was happy with my 5.95 sell order.

But a good lesson learnt. AS they say here - Let your profits run. But as I cannot at this stage determine when a trend is going to falter, I decided to set a sell price and stick to it.

Any tips here to determine when to get out. I had decided to follow Guppy's idea of being like a sparrow - go in and get little profits at a time. Hopefully a lot of little profits will add up.

Still learning

But is it better to go with the big volume trading shares like PNA, AZR, BPC etc or the rapid rising shares like MCC with a smaller trading volume??

CHeers 

suzanne


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## tech/a (6 February 2005)

Sooz.

Imonly having a dabble as I havent the time to devote to watching the screen.For me I think medium term will be the shortest.If your really trading very short term even day trading I really think youll need Tick charts 5min to 1 hr.I use Marketcast but its a few $$$s a year.

About Fear and Greed.

I really think its highly correlated to the amount of your net worth your trading.(Available capital more so).This also has a bearing on reaping a living off of Longer term trading.

Firstly short term

(As an example) If you have $10k to your name and your trading it then every trade is going to be edge of your seat stuff.
If you have 200K and are using $20k then youll have a different perspective (well at least I would).

Trading longer term and reaping enough to survive doesnt take as much as youd think.Last week the longer term method T/T gained 7k (Which is abnormal) 2-3 isnt though.Initial capital was $35k so 3x this would currently give a good return.(as Im trading Margin).

Im not trading for a living and dont want to,if I pull another wage from trading great if not then thats OK.

tech


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## dutchie (6 February 2005)

Hi Suzanne

When to get out of a share thats gone above your predictions ????

1. Make further predictions if possible and act on them.

OR

2. Decide what would make you happier - 

    getting out with a profit even though it keeps going up

or  staying in only to see the price tumble

(a bird in the hand is worth two in the bush)


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## tech/a (6 February 2005)

On exit.I think it very difficult to trade short term using EOD data.


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## doctorj (6 February 2005)

Trading stocks like AZR, AVO, RRS, NMS etc. are tough.  I would suggest that before putting in an order, you prepare your stops and stick to them.  Then be prepared to revise your stops every few hours or even every evening if like Tech you can't sit in front of a screen.  Do not revise your stops down, and only bump up your stops if it is safe to do so else a small retrace can stop you out even in an uptrend.

These stocks are fun, but more akin to gambling.  I would encourage someone that's used to longer hold tempted to have a go at these stocks to do as you have done.  Split your portfolio up and only put as much into your high risk/high growth portfolio as you can afford to lose.  Gearing is wonderful, but don't risk losing your house and first born on a 20c stock that's yet to make any money.


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## suzanne (7 February 2005)

Thanks guys for your replies. 

It's really good to get some feedback from people who are more experienced in this area. Helps me with future situations.

Cheers 

suzanne


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## GreatPig (7 February 2005)

Suzanne,

Do you use any charting software or are you just watching the daily prices?

Personally I think it's futile trying to pick the highest point a stock will reach on any move. To try and get the most out of a rising stock, I think it's better to wait until the stock is starting to fall again and have an exit price based on some amount of fall from the last high (effectively a trailing stop). You could base the amount of fall on a few different things, like a simple percentage of the price or something more complicated like some multiple of the ATR if you have suitable software. That way you'll never get the very highest price, but you'll also be less likely to sell out too early.

I have some investment shares (ie. intended to be long term) where I mainly use chart patterns (mostly just trend lines) to keep an eye on the price. However, I'm also paper testing my automated trading system (well, semi-automated) and intend to start using it for real as soon as I finish getting some business structure stuff sorted out. Since you mentioned MCC, and it's quite a good example, I've attached a chart of it below showing the results of my trading system on it. The blue & orange zig-zag lines are sort-of trailing stops (I say sort of because they don't work exactly like standard trailing stops), but essentially they show the times when the stock would be held. The multiple up-arrow is where I actually obtained some for the portfolio  (I've only been running this paper test since early December, the earlier stuff is just back-test results).

As you can see, although the stock has been mostly rising since May last year, the trading system signalled a sell in early December and another buy at the start of January. Now, it would have been more profitable not to do that sell and buy, since the buy price was slightly above the earlier sell price and there would be the two sets of brokerage, but of course at the time the sell signal was generated, there was no knowing the price was going to go back up. So the point is, I think you have to just pick some price where you're going to sell (adjusted daily but never down) and stick to it. If the price then continues up, treat it as a completely new trade and start again deciding if it's worth buying at the new price. Get rid of all emotion and indecision by deciding in advance how you're going to enter and exit stocks and ignoring the times when it doesn't give you the best results (although use these results to help you fine tune your method). You can't expect 100% success and you certainly won't get it no matter how you trade.

Of course this is all just my opinion based on my own limited experience and system back-testing. I'm sure others will have other trading methods that also work, and quite probably better.

Cheers,
GP


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## RichKid (7 February 2005)

Hi Suzanne,

You might find this thread on trading plans to be useful: https://www.aussiestockforums.com/forums/showthread.php?t=401&highlight=trading+plan


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## suzanne (8 February 2005)

Dear Richkid and Great Pig,

Thanks for the replies. No I don't have any charting software yet. I have been looking into buying Amibroker but haven't bought yet as I am trying to ascertain as to whether or not,  I have the "trader"  not the investor mentality or instinct. 

It is a bit hard for me to convert to a trader way of thinking as I believe that longer term investing is the way to go but I do love it. Very stimulating and challenging.

Currently I am just using Etrade charts and end of day data. I haven't developed a complete trading plan as I am learning new things daily and have to constantly alter things as I go. I tend to rely on such charts as the MACD, RSI, Directional Movement ( I've worked out what it means), Bolinger Bands, Candlestick, trends etc.

I seem to be able to get into good trades but it is the exit that I stuff up on. I either stay in too long or exit too soon.  With MCC I had an exit of 10% planned, but when I came along it had risen to nearly double that and still going strong. I had previously traded this share and like you Greatpig, felt if I could read the charts better I would have known to stay in the trade and saved brokerage.

But anyway I am learning constantly. Currently reading Guppy's Trendtrading and Bedford's Charting Secrets. Great stuff. I can't believe how caught up one can get with these charts. I am really loving it. Its getting a bit addictive though. I can't keep away from the stock market. Any one else have the same problem.

What are peoples views on the Interest rate hike threat. How will this affect the market do you think. Will there be a pull back. Should one pull in their horns for a while and take some profits or sit tight for the moment??

Awaiting some ideas.

Cheers 

suzanne

P.S Like I said earlier, I always pull out of stocks too early - today I sold out of AZR and of course the price went up to 0.225. I was not sure what the reaction or affect the interest rate hike would have on the public, so I decided to get out. My interpretation of the charts was that there was some more uptrending to go.


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## doctorj (8 February 2005)

AZR is an interesting one.  It doesn't seem to have the price manipulation present in several similar stocks.  It's also seen plenty of good press lately, but much of it and the announcements have been dominated by the options at the end of January.  Now that's behind us, expect speculation and traders to drive the price flux until the next announcement - which is hoped to be a resource upgrade.  

AZR is a good example of why you need to set your stops and stick to them, as long as they're not going down, unless they've established a strong sideways movement look to hold.  Depth in AZR suggests there is good support for the stock, even on close right up until 22.0

Even when it comes to investing over trading, a good charting package enables you to buy into strong uptrends at the right point in the price cycles.  And when you're trading, let your profits run and stick to your stops.


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## tech/a (9 February 2005)

By letting your profits run a few things happen and you should be aware of them so that you dont react early!

(1) Your capital will be tied up longer in the one trade (I think it wise to have a time stop so that if the stock goes sideways you get out so that your money can be working for you else where.)

(2) Youll often have to give up profit it stay in a sustained trend and sometimes youll get it wrong and some profit will be returned.

(3) Great Pig got it spot on when he said go for the piece in the middle neither the bottom or the top.

(4) Your success rate will drop to around 30-40% winning trades----but your reward to risk will be much greater---most long term methods seem to return 7-12x risk on average.Short term can be as low as 1.5 or as high as 5x but win rate is/should be +50%

(5) I would have an initial stop loss set at 10-20% of initial BUY price------- so if using 10 stocks for a portfolio and trading equal amounts thats a risk of 1-2% on each trade.My testing has shown an average of 27% of trades are stopped at 10% and 9% at 20%.
Higher and lower % have negative effects on methods tested.

(6) Number (4) deminishes the higher your stop % is set.

I hope this helps as when trading its good to have an idea what to expect when your holding a portfolio and know when it goes outside of those known parameters that something is not right.

Another reason I like trading mechanically.V Discretionary.
Option Traders have the same or even better understanding of their risk---it can be quantified.


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## GreatPig (9 February 2005)

Suzanne,




> I have been looking into buying Amibroker



Excellent software for the price, I reckon. It's what I'm using. Helps though if you have something of a programmer mentality, as it has a powerful scripting language (I'm a programmer by profession). I remember fiddling with it quite a bit after I first bought the package to get the layout of screens and indicators as I wanted them. It's also great for running scans over all the stocks to find ones that meet certain criteria. Saves a lot of manual searching. You can trial the software, but the trial version won't allow the database to be saved.




> I am trying to ascertain as to whether or not, I have the "trader" not the investor mentality



IMHO, it doesn't matter which you have. It's still good to have some sort of charting software to be able to time your entries and exits - even for investing. For my investment portfolio, I use the software so that I can draw trend lines to ensure the trend is staying on track, and to warn me if it starts to falter. It also lets me time my buying for when the current price is not too far above the trend line, since that marks the typical lowest price to expect at any time while the trend is still going. If the price is way above the trend line, I would expect (but of course may not get) it to eventually correct back to the line, which may mean either a price fall or period of sideways movement with little gain. Of course, the longer you intend to hold the stock, the less important that becomes.




> I believe that longer term investing is the way to go



I think either is okay, depending on what you like and what you want. Trading takes far more time and effort. However, even with investing, I would NOT hold a stock that was obviously in a major down-trend. Once it looks like the main up-trend has failed, I would still sell and either buy something else or look to buy the same one again later once it was on the next up-trend. If you hold during a down-trend, even though you're still getting dividend income you're losing capital which you potentially may never get back again. There's always some risk, even with a big company, that the price will never get back to where it was in your investment time frame (just look at AMP if you'd bought some years ago).

I think if you read more Guppy stuff, you'll find he goes over this sort of thing too. And take a look at Colin Nicholson's Website. He has one interesting article there about finding stock value and the market cycle.




> I seem to be able to get into good trades but it is the exit that I stuff up on. I either stay in too long or exit too soon



That's why I think you need a plan . You have to look for something that gives reasonable results on average, but expect it to also frequently get it wrong and don't fret over those occasions. In the end it's a numbers game, with quite probably more losing trades than winning ones, but hopefully with the profit from winning ones being more than the losses on losing ones. And when you first start trading, you have to expect a realised loss for a while, since you'll mainly only be selling the losing trades and holding on to the winning ones.




> if I could read the charts better I would have known to stay in the trade and saved brokerage



Not necessarily. I don't like to try and predict anything from charts other than trying to choose stocks that have a higher probability than most of going up. Once I've bought though, the charts are only used to tell me if the price is staying above my sell point. Since I know already what that is (or it's determined automatically by my mechanical system), it's dead easy with no predictions, guessing, or chart readings required. 

And personally I don't worry about brokerage too much, unless the order value is very small. To get an idea, look at the quantity of a share you've bought and work out how much price movement is required just to cover the brokerage. Depending on the order size, you may find it's only a few cents at most. While this may be significant for very short-term traders, I don't think it's significant for longer-term ones and it's not even a factor in my buy and sell decisions.

Once again, these are all just comments based on my own opinions and not intended as advice of any kind.

Cheers,
GP


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## RodC (9 February 2005)

tech/a said:
			
		

> By letting your profits run a few things happen and you should be aware of them so that you dont react early!
> 
> (1) Your capital will be tied up longer in the one trade (I think it wise to have a time stop so that if the stock goes sideways you get out so that your money can be working for you else where.)




A time stop sounds like a great idea, I'm just trying to work out an appropriate one to use and how to set it up.

Rod.


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## RichKid (9 February 2005)

Suzanne,

The basic TA premise is that a trend is considered to continue in strength until there is overwhelming evidence to the contrary (or something to that effect- lots of posts on it in these forums, see the search link). So if you're a trend trader or a TA follower there is no reason to exit if the prices are going higher and higher on volume (assuming you're long on the stock). Of course if you have a particular method where you just exit once a profit target or resistance level is met then you would follow that plan and you would know how to exit as well (ie where to place stop loss etc). 

Might be best to start with Guppy's 'Share Trading' for some background on general topics. Again, if you're making the gains you've mentioned you must be doing something right, might be worth evaluating your method so far and picking the best bits out of it.

Note the initial section in Guppy's Trend Trading on trader vs investor, you're probably a trader, just have to work out your time frame (ie short term or long term trader and what is that time frame for you)

See this thread for Van Tharp's book on money management and trading, very good imo https://www.aussiestockforums.com/forums/showthread.php?t=846

This thread is on Exits, may be best to continue that aspect of the discussion there as it is a very important topic and deserves its own thread imo: https://www.aussiestockforums.com/forums/showthread.php?t=888&highlight=exits 

Also see (re Exits and CGT)https://www.aussiestockforums.com/forums/showthread.php?t=824


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## suzanne (15 February 2005)

Hi Guys,

Sorry to take so much time to thank you all for the information. I am still going through it. I was bomb barded with viruses, spyware malware last week- you name it. All my software was not good enough. The computer crashed and I lost everything. But anyway I am back on line. Still having trouble with DSO Exploit - can't get rid of it. 

Anyway I have decided to clean out my 'closet' portfolio and do as you have all advised. The main thing I picked up on was 'why have shares sitting there waiting for the next dividend, price rise etc' why not put your capital to working the hardest it can. Yes you can always buy the share back again.

Yes I am going to set my profit limits and stop losses when I buy and just stick to it to see how I go. If the share price is rolling along I intend to let the profits run.

Anyway thanks again for all the info.

suzanne


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## emily (16 February 2005)

*suzanne*

hello suz, 
going totally out of the subject... try the program microsoft anti-spyware http://www.microsoft.com/   its a scanner to remove spywares.
To avoid spywares and viruses, try using a different internet browser such as modzilla firefox - excellent browser. http://www.mozilla.org/products/firefox/
Avoid using microsoft internet explorer and microsoft outlook. Use a good firewall.
Otherwise, just download the SP2 package - good for novice users.

That should do the trick,

emily
happy trading


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## The Barbarian Investor (18 February 2005)

Hi Suzanne

have a look at some of the articles at www.investmentwise.com.au re Stop/Loss and profit stops for interests sake only..


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## suzanne (18 February 2005)

Dear Emily and Barbarian Investor,

Emily I certainly will try out mozilla browser as this spyware problem is linked to internet explorer. It has been around since 2002 but it just started causing me problems about 2 weeks ago. I found a web site forum on microsoft updates where there seems to be a current resurgence of this problem and one person recommended choosing 'ignore' on spybot in the advanced section but it still seems to be causing problems. so thanks again.

Barbarian I looked up that site you recommended and the 4 golden rules are certainly worth incorporating and I intend to get stuck into a trading plan. I have incorporated a definite stop loss plan into practice even though the share price went up again afterwards and I kicked myself - that was with QGC but I only sold out the bulk because I wanted to be on the register to be able to be involved in the share offer.

As it was the price went down afterwards but anyway Ive decided to stick to the stop losses I set.

Cheers 

suzanne


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## The Barbarian Investor (22 February 2005)

I bet manypeople who held Sons of Gwalia and a few other rapidly falling stocks wish they set 'stop losses' as the pain only gets worse..


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