# Spec stocks



## tom82 (1 June 2014)

What books and / or other resources can you recommend one regarding investing in spec stocks?

Thank you


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## Faramir (1 June 2014)

Source: Sydney Morning Herald, Money Liftout, Page 7
"Intelligent Investor - Nathan Bell", Wednesday 21 May 2014

Summary:
"Individually, speculative stocks should account for no more than a 2 per cent portfolio weighting each. Let's now look at do's and don'ts."

1 DO look for a market niche
2 DO look for revenues and (preferably) earnings.
3 DO analyse the competition carefully
4 DO worry about debt levels
5 DO look for management ownership
6 DO consider stock liquidity
7 DO NOT buy too much
8 DO NOT chase the stock up
9 DO NOT expect miracles

The article gives a small explanation of each point.
http://www.smh.com.au/money/investi...n-looking-to-small-stocks-20140520-38ltg.html

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Sorry if this is not a book you were looking for. I am only making a small simple contribution that someone can add to OR refute what has being stated above.

Point 5 would be very hard for me to evaluate at this point of time. Hopefully this will change for me.

Maybe someone can suggest a book.


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## tom82 (1 June 2014)

Faramir said:


> Source: Sydney Morning Herald, Money Liftout, Page 7
> "Intelligent Investor - Nathan Bell", Wednesday 21 May 2014
> 
> Summary:
> ...




Thanks for the reply. Well I did say "and / or other resources". Those are some important points which I have been considering.
Thank you


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## luutzu (1 June 2014)

tom82 said:


> What books and / or other resources can you recommend one regarding investing in spec stocks?
> 
> Thank you




If you're going to speculate, why do you need to learn how to speculate "properly"?
Wouldn't knowing something properly meant it's no longer speculation, maybe now an educated guess?

And since you're looking to be educated, why not learn "proper" investing as opposed to speculating?
That way, you know when you are investing and when your decision were not made soundly - that it's speculating.


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## luutzu (2 June 2014)

Faramir said:


> Source: Sydney Morning Herald, Money Liftout, Page 7
> "Intelligent Investor - Nathan Bell", Wednesday 21 May 2014
> 
> Summary:
> ...





Regarding "6 DO consider stock liquidity".

I recently reread Peter Lynch's Beating the Street [?] where he said stock ownership, like marriage, shouldn't be getting into because of the ease of divorce - that just because a stock is liquid and you can get out if things goes bad, it's going to be pretty bad no matter how quick the divorce is going to be.

I think that just about wipe out most of those Dos and Don'ts.

----
Companies, unlike people, just don't have potentials to be great from whatever station in life. 

If the company has good prospects, it should already be shown in their current operations and management. Its size might be small, but its returns, margins are very good... and it's selling at a price you'd be happy with no matter if the future is bigger or small.

So unless you know the company and its operations well, and I mean very very well, don't buy small companies thinking it will grow faster and take over the world... or the world will take it over (as in buy you out) - the world generally do take it to town though.

I mean, most big companies first tries to squash young upstarts, try to bankrupt smaller rivals with lower margins and what not... then if all else fail, try to take over the 4th or fifth market leaders - they can't take over their nearest "rival" only because it's illegal.

I think it's better, and safer, to look at the big end of town... and for the smaller upstarts that do make it, it's not too late at all to buy them when they have shown obvious signs of a real force to be reckon with.


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## Boggo (2 June 2014)

luutzu said:


> Regarding "6 DO consider stock liquidity".
> 
> I recently reread Peter Lynch's Beating the Street [?] where he said stock ownership, like marriage, shouldn't be getting into because of the ease of divorce - that just because a stock is liquid and you can get out if things goes bad, it's going to be pretty bad no matter how quick the divorce is going to be.
> 
> ...




Some great theory there, now try applying that to every stock that is between lets say 50 cents and a dollar on both a daily and weekly basis, and then allow for the fact that by the time us mug punters, ie. the great unwashed get the info mentioned above it is too late anyway. The big end of town is either running the show upwards or is looking for a mug punter to sell to.

Tom, if you want to play with speccies you have to be able to recognise some basic behaviour which shows up as it happens and for that you need to "see" it in chart (reality) behaviour.

Below is an example using a weekly chart, the "buy" signals are a "look at me" heads up scan return that saves me having to eyeball hundreds of charts.

When a pattern appears then you may want to look for some or all of the items mentioned earlier to see if there is potential theoretical support for the behaviour, you won't always find it (or need it).

In the example below there was positive news that coincided with the last "heads up" signal.
The overall pattern combined with volume spikes on the up bars and lack of selling on the down bars are the initial primary indication.

Would any of you commentators on here buy just off this chart spec behaviour ?

(click to expand)


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## burglar (2 June 2014)

Boggo said:


> ... Would any of you commentators on here buy just off this chart spec behaviour ? ...




Three entries, no exits, ...

Interesting!


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## Boggo (2 June 2014)

burglar said:


> Three entries, no exits, ...
> 
> Interesting!




Not really, read it again.



Boggo said:


> Below is an example using a weekly chart, *the "buy" signals are a "look at me" heads up scan return* that saves me having to eyeball hundreds of charts.




The exit may be a close below the red trailing line with a one bar delay open also below red until trend established.


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## tom82 (2 June 2014)

luutzu said:


> If you're going to speculate, why do you need to learn how to speculate "properly"?
> Wouldn't knowing something properly meant it's no longer speculation, maybe now an educated guess?
> 
> And since you're looking to be educated, why not learn "proper" investing as opposed to speculating?
> That way, you know when you are investing and when your decision were not made soundly - that it's speculating.




So what resources do you suggest on "proper" investing?


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## tom82 (2 June 2014)

Boggo said:


> Some great theory there, now try applying that to every stock that is between lets say 50 cents and a dollar on both a daily and weekly basis, and then allow for the fact that by the time us mug punters, ie. the great unwashed get the info mentioned above it is too late anyway. The big end of town is either running the show upwards or is looking for a mug punter to sell to.
> 
> Tom, if you want to play with speccies you have to be able to recognise some basic behaviour which shows up as it happens and for that you need to "see" it in chart (reality) behaviour.
> 
> ...




Ok, so what behavior should one be looking for on charts?
What do you program into a scan so you dont have to look over hundreds of charts?
Are you using an EMA, how many periods is it?
Is this system simply a buy order is generated when price breaks above the EMA?
Are you mainly buying when there is a large bullish candle with large volume?

I also trade the forex, mainly with charts price action, signals I look for are low test / high test candles (also called pin bars, also has other names), inside bars, and the hikake pattern.


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## Wysiwyg (2 June 2014)

Boggo said:


> Would any of you commentators on here buy just off this chart spec behaviour ?



 Looks like a HHV/LLV +/- ATR chandelier.

I would not buy the high range / high volume signal. The second signal in the blue box looks inviting but the gap up breaking the down trend a few bars earlier would be a low risk entry. Stop being below/equal to previous low.


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## Boggo (3 June 2014)

Wysiwyg said:


> Looks like a HHV/LLV +/- ATR chandelier.
> 
> I would not buy the high range / high volume signal. The second signal in the blue box looks inviting but the gap up breaking the down trend a few bars earlier would be a low risk entry. Stop being below/equal to previous low.




Onya Wysiwyg for having a go.
The important bit of your comment imo is the reference to low risk entry. Also, on those heads up "buy" signals on my chart, the ideal entry is to wait for a bar that breaks the high of the signal bar.

In the portion of the chart I posted there is an obvious change of trend/sentiment/behaviour.

That is what I was leaning to in answering the original post, that is to recognise a change of behaviour and if you can associate that with a low risk entry it can put you ahead of the game.
How you find these trades is up to you but they do appear all the time on a daily and weekly basis.

You will have more winners than losers but just don't chase the losers down with a "it's a bargain at this price" approach.
Cut the losses early and the winners will more than make up for the losers.

That's my contribution to the topic, and the complete (weekly) chart below.

(Disclosure- I still hold GXL)

(click to expand)


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## tom82 (3 June 2014)

Boggo said:


> Onya Wysiwyg for having a go.
> The important bit of your comment imo is the reference to low risk entry. Also, on those heads up "buy" signals on my chart, the ideal entry is to wait for a bar that breaks the high of the signal bar.
> 
> In the portion of the chart I posted there is an obvious change of trend/sentiment/behaviour.
> ...




Are you using an EMA, how many periods is it?
Is this system simply a buy order is generated when price breaks above the EMA?
Are you mainly buying when there is a large bullish candle with large volume?

I also trade the forex, mainly with charts price action, signals I look for are low test / high test candles (also called pin bars, also has other names), inside bars, and the hikake pattern. 

Thank you


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## Boggo (3 June 2014)

tom82 said:


> Are you using an EMA, how many periods is it?
> Is this system simply a buy order is generated when price breaks above the EMA?
> Are you mainly buying when there is a large bullish candle with large volume?




There are a few indicators involved in the scan but they only serve to assist in reducing the number of scan results to about 5% maximum of any scanned group.

The pattern is the important bit as it is a result of behaviour. Find the patterns that have worked in the past and then build a method of finding those patterns using anything that assists.

Have a look at the weekly charts of NEA, CAJ, TNE and GXL above as some examples and you will see items that are common in all of them.
The reason I refer to weekly charts is that are generally more stable and easier to build a scan around, maybe that's just me.

Below is a daily chart of CAJ using a different scan, note the number of "heads ups" (which I have had Metastock rename to eliminate any confusion with buy signals). I haven't shown volume but you may want to look at that on your own chart.
Once again, note the numerous pattern similarities just on the same chart extract.
You could easily look at this and think they are all just breakouts, that is part of the picture but if you went just on breakouts you would probably get 90% of the market after a bullish day on the ASX but 85% of them will just fail at the first sign of a flat day.

(click to expand)


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## tom82 (3 June 2014)

Boggo said:


> There are a few indicators involved in the scan but they only serve to assist in reducing the number of scan results to about 5% maximum of any scanned group.
> 
> The pattern is the important bit as it is a result of behaviour. Find the patterns that have worked in the past and then build a method of finding those patterns using anything that assists.
> 
> ...




Certainly looks interesting.

How do you work out your stop loss and targets?

What is the name of this method and where can I find out more about it?

Thankyou


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## Boggo (3 June 2014)

tom82 said:


> How do you work out your stop loss and targets?




Stop loss is an obvious level on the chart associated with a percentage or $ value that you are prepared to risk.
Eg
_ To apply correct Position Sizing to your trades you start by risking the same % of your trading account on each trade. To do this, you will have to vary the number of lots, shares or contracts you trade to keep this initial % risk constant from trade to trade.

So, for a 2% risk on a US $20,000 account, this would mean an initial risk of approximately $400 for each of your trade set-ups. You then have to calculate how many lots, shares or contracts to trade for this $400 initial risk, based on the trade entry price and the price of your initial protective stop._ 




tom82 said:


> What is the name of this method and where can I find out more about it?




Just two personal scans, one built from scratch, the other a combination of mine and bits from others.


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## tom82 (3 June 2014)

Boggo said:


> Stop loss is an obvious level on the chart associated with a percentage or $ value that you are prepared to risk.
> Eg
> _ To apply correct Position Sizing to your trades you start by risking the same % of your trading account on each trade. To do this, you will have to vary the number of lots, shares or contracts you trade to keep this initial % risk constant from trade to trade.
> 
> ...




You say _"You could easily look at this and think they are all just breakouts, that is part of the picture"_, what are the other parts of the picture?
What are all the steps in this method?


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## luutzu (3 June 2014)

Boggo said:


> Some great theory there, now try applying that to every stock that is between lets say 50 cents and a dollar on both a daily and weekly basis, and then allow for the fact that by the time us mug punters, ie. the great unwashed get the info mentioned above it is too late anyway. The big end of town is either running the show upwards or is looking for a mug punter to sell to.
> 
> Tom, if you want to play with speccies you have to be able to recognise some basic behaviour which shows up as it happens and for that you need to "see" it in chart (reality) behaviour.
> 
> ...




Man, if you already know that the big guys already know these pricing data, heck, they might even be the price makers, and if not, already have much more powerful databases and what not... and still somehow want to play a game that's rigged against you.

If a small army where to fight a superpower, for it to fight on an open field, using conventional [technical] means, it's not a theoretical conclusions that they will be wipe off the face of the earth.

You guys are looking at the wrong charts.


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## tom82 (3 June 2014)

luutzu said:


> Man, if you already know that the big guys already know these pricing data, heck, they might even be the price makers, and if not, already have much more powerful databases and what not... and still somehow want to play a game that's rigged against you.
> 
> If a small army where to fight a superpower, for it to fight on an open field, using conventional [technical] means, it's not a theoretical conclusions that they will be wipe off the face of the earth.
> 
> You guys are looking at the wrong charts.




Please elaborate. What are the correct charts then?


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## luutzu (3 June 2014)

tom82 said:


> So what resources do you suggest on "proper" investing?




Say you open a butcher shop. 
What will ultimately determine the price of that business?

If you think it's worth whatever price the next guy or two is offering, then study the price charts... just maybe don't expect that the prices will be up and only up for it for me "right"... or that the prices will just be down as you guessed it and you won't sell unless it goes your way.

If the value of something you have is whatever price the market deem it is worth, how then do you make a profit when you buy or sell? How do you know when to get out and when to wait? That is, if the market is always right, then whatever it is it will always be right... and it being right has nothing to with you being profitable or not based on your purchase price.

In short don't study with eyes wide shut.


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## Boggo (4 June 2014)

luutzu said:


> Man, if you already know that the big guys already know these pricing data, heck, they might even be the price makers, and if not, already have much more powerful databases and what not... and still somehow want to play a game that's rigged against you.
> 
> If a small army where to fight a superpower, for it to fight on an open field, using conventional [technical] means, it's not a theoretical conclusions that they will be wipe off the face of the earth.
> 
> You guys are looking at the wrong charts.




Sounds like you have got this money making business all sussed out 



tom82 said:


> Please elaborate. What are the correct charts then?




Yes please x 2


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## luutzu (4 June 2014)

Boggo said:


> Sounds like you have got this money making business all sussed out
> 
> 
> 
> Yes please x 2




Yup, all i need now is $20 millions in the bank so I can make $1 million a year 

Anyway, much smarter and way richer people than myself (and most others in history) have said the same thing... It seems success or wealth or reason just can't convince some people.


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## Boggo (4 June 2014)

luutzu said:


> ... It seems success or wealth or reason just can't convince some people.




Demonstrating what it is you are rambling on about would be a starting point perhaps or are you more interested in derailing this thread with some irrelevant or obscure butcher shop analogy.


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## tom82 (4 June 2014)

Boggo said:


> Demonstrating what it is you are rambling on about would be a starting point perhaps or are you more interested in derailing this thread with some irrelevant or obscure butcher shop analogy.




Oh good, I wasn't the only one struggling with the butcher shop then!

I was thinking selling a million dollars worth of meat was a lot of meat.

So Boggo what are the steps in your method?


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## luutzu (4 June 2014)

Boggo said:


> Demonstrating what it is you are rambling on about would be a starting point perhaps or are you more interested in derailing this thread with some irrelevant or obscure butcher shop analogy.




Oh yea, was going to detailed the butcher shop analogy but went to sleep after the pricing analogy that followed 
I thought that was pretty good though... Anyway


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## Wysiwyg (4 June 2014)

luutzu said:


> Yup, all i need now is *$20 millions in the bank so I can make $1 million a year*
> 
> Anyway, much smarter and way richer people than myself (and most others in history) have said the same thing... It seems success or wealth or reason just can't convince some people.



4% bank interest is 800k. You got nothing but words.


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## luutzu (4 June 2014)

Wysiwyg said:


> 4% bank interest is 800k. You got nothing but words.




If i have $20 million, i probably could negotiate and get 5%, at least.


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## Wysiwyg (4 June 2014)

tom82 said:


> What books and / or other resources can you recommend one regarding investing in spec stocks?
> Thank you



You could derive experience by testing strategies for speculative stock trading. Back testing software (also use it for scans to find the stocks of interest) is quicker but is not an accurate replication of what would have happened but can give one confidence to -->. Alternatively, create a portfolio you could afford to actually trade using your strategy for size, entry & exits and trade it for a set period (e.g. 40-50 days). Note market conditions that the results were tested under (rising/falling/sideways, long run up/down, high/low percent change for test period, volume, season). Consider the spec. stocks liquidity and remember speculative stock can be hot potatoes with the risk being the greater fool by buying at what turns out to be the top of a spike.


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## Boggo (4 June 2014)

tom82 said:


> Oh good, I wasn't the only one struggling with the butcher shop then!
> 
> I was thinking selling a million dollars worth of meat was a lot of meat.
> 
> So Boggo what are the steps in your method?




You get those on every thread tom, can't contribute but want to be involved.

Back to your topic, pretty much as Wysiwyg has said below.
Basically look at past pattern behaviour that has been successful and try to determine why those were different to the majority.
Then you really need to develop your own way of either scanning for or having the ability to "see" potential in glancing at charts. I am assuming that you are using some sort of programmable software that you can set up to assist.
It took me years to build my systems, actually not that long to build them, more a case of taking time to have confidence in it and looking at it as a numbers process to eliminate emotion.

You can probably understand why I am reluctant to get too descriptive in my process especially when we have the people who intervene, don't contribute but tend to derail the discussion as their relief process after they have finished their busy days work at NASA.

In some ways it is actually easier to eliminate unlikely stocks and that will significantly reduce the number remaining. Put a filter on a scan on a scan and start working with stocks in the 50c to $1 group for starters as an example.
Good info below.



Wysiwyg said:


> You could derive experience by testing strategies for speculative stock trading. Back testing software (also use it for scans to find the stocks of interest) is quicker but is not an accurate replication of what would have happened but can give one confidence to -->. Alternatively, create a portfolio you could afford to actually trade using your strategy for size, entry & exits and trade it for a set period (e.g. 40-50 days). Note market conditions that the results were tested under (rising/falling/sideways, long run up/down, high/low percent change for test period, volume, season). Consider the spec. stocks liquidity and remember speculative stock can be hot potatoes with the risk being the greater fool by buying at what turns out to be the top of a spike.


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## luutzu (4 June 2014)

Boggo said:


> You get those on every thread tom, can't contribute but want to be involved.
> 
> Back to your topic, pretty much as Wysiwyg has said below.
> Basically look at past pattern behaviour that has been successful and try to determine why those were different to the majority.
> ...




I thought i was making a contribution, one that's somewhat useful.

But I guess you shouldn't correct people... it's rude


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## tradernor (4 June 2014)

When you buy spec stocks, you must invest as much as you can afford to lose. This is like gambling in LV.
I do not buy spec stocks at all.


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## DeepState (4 June 2014)

Hi Tom82

I just got back from feeding my NASA monkeys.  Did I miss something?

You have been receiving detailed advice on Technical Trading.  It can work.  You can dig this up.  I can tell you the authors are world class rockstars so this is tight.  But obviously the study is old and done prior to the advent of HFT and algo:




Your Tech advisers can give you copious references.

I am going to derail this thread by making an assumption (possibly incorrect) that spec stocks can be regarded as just small cap stocks for this note.  Given we do not have common agreement on what represents spec, I'll just go forward with this and you can extrapolate it for your purposes.

If your preference is fundamentally oriented investing instead (it doesn't have to be to the exclusion of technical approaches), then the following is what the professional market has been able to deliver.  If you work at it over time, you have decent advantages and might reasonably expect to do very well also.

First, this is a chart of the total return index of the ASX Small Ordinaries (the next 200 stocks after the ASX 100).  It's done alright.  Since Feb 2001, you've got around 2 1/3 times your money to end of May 2014:





The following chart shows the extent to which the median small cap manager in the Mercer Surveys (These are the leading insto surveys) beats that index on an annual basis.  You can see that it is by a very handy amount.  It all adds up:





One of the leading managers is Acorn.  This is their performance.  They have quadrupled your money in the same period.  That's a good effort in my view.  But you may be aiming for more and that's your prerogative:





One thing to be aware of in truly speculative situations is something called the lottery effect.  Stocks which have low price, typically no earnings, low liquidity and/or high volatility (deeply speculative stocks) tend to underperform as a whole.  I'm sure you can look up why on the web.

If you are interested in books to read if you wish to pursue some element of fundamental investment (and all the insto investors are fundamentally dominated), then I can recommend that you start with "The Intelligent Investor" by Benjamin Graham.  Then, after that, I can recommend "Competitive Strategy" by Michael Porter.

You have been receiving adequate advice on risk management.  I might disagree on the edges, but that's not important here.

All the best with your journey.


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## luutzu (4 June 2014)

DeepState said:


> Hi Tom82
> 
> I just got back from feeding my NASA monkeys.  Did I miss something?
> 
> ...




Wrong assumptions.

Speculative stocks are stocks you buy expecting certain outcome without much real evidence to support such hopes beside your gut feelings or some news or hype you've heard. It could be a blue chip or a micro capped company.

Secondly, you're mis-using or misunderstood the application of those charts. That just because a micro fund manager or a stock index or whatever group of stocks generally does well, it does not then mean an investor/trader could do just as well when he engaged in, speculates in, those kind of stocks - that he could only be expected to average or if historical results could predict future returns, could only expect to do similarly well if he buy the index or enough stocks to represent the stocks whose performance has been recorded.

In other words, just because no houses have been burnt down in your state, and your house is burning down but you say it couldn't be because on average no house is burning in your state.

----

Tom, good luck man.

Read the Intelligent Investor... ignore what RY said about Technical analysis could also work... i think he just had a big dinner and was being kind


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## tom82 (4 June 2014)

I can report that I have acquired the book The Intelligent Investor by Benjamin Graham (revised edition), I am considering his other book Security Analysis and I have also acquired Roger Montgomery's book Value.able (got it when it first came out a couple years back -limited edition. Also a student of Graham and Buffet).

I have ordered Louise Bedfords books Trading Secrets 3rd edition, Charting Secrets, The Secret of Candlestick Charting Book and Chris Tates The Art of Trading - 2nd edition.

I also have:

Teach yourself about shares revised edition Roger Kinsky
Share Investing for Dummies 3rd Australian edition (well over 400 pages)
Starting out in Shares, The ASX Way 2nd edition
Exchange Traded Funds for Dummies Australian and NZD edition Colin Davidson
Forex made Simple Kel Butcher
Futures made simple Kel Butcher
Commodities for Dummies 2nd edition Amine Bouchentouf
CFD's for Dummies David Land (sent to me from CMC Markets!)
Getting Started in Currency Trading 3rd edition (think they are upto a 4th edition now) Michael Duane Archer
Naked Forex Alex Nekritin
Technecial Analysis Explained Fourth Edition Martin J Pring (also have the study book that goes with it)
Technical Analysis Of The Financial Markets John J Murphy (hardcover)
Technical Analysis for Dummies 2nd edition Barbara Rockefeller
Currency Trading for Dummies Brian Dolan 2nd edition
FX Trading Mark Douglas
Beat The Forex Dealer
Come into My Trading Room Dr Alexander Elder
A CFD book by Catherine Davey
Market Wizards Jack D Schwager
The Warren Buffet Way (want to get the follow up book as well)
Reminiscences of a Stock Operator Edwin Lefevre (I think I should re read this)
Super Trader
Think And Grow Rich
Fibonacci Analysis Constance Brown
The Zurich Axioms Max Gunther (Think I need to re read this)

The books on shares dont really have anything on strategy or method or money management or spec stocks, but hoping that Ben Gram's books principals can be used on spec stocks.

Spec stocks can be small caps as well. Spec stocks are companies that are exploring or in the process of inventing something and or in the process of getting approvals eg medical / bio tech companies and these companies are usually not proven and / or have little history.


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## tom82 (5 June 2014)

Boggo said:


> You get those on every thread tom, can't contribute but want to be involved.
> 
> Back to your topic, pretty much as Wysiwyg has said below.
> Basically look at past pattern behaviour that has been successful and try to determine why those were different to the majority.
> ...




I am using the charting software Incredible Charts (After 7PM package), it is possible to run scans, it is a basic software but should be enough to get started for now.
Are you using MetaStock, whats it like, is there on going subscription fees, prices?
I can see and understand your reluctance about descriptions in open forum, we could take the conversation of descriptions to private messages?
I'm aware of some forex training mentors that run seminars and the attendees have to sign a non disclosure document and some online forums and education materials to be treated as in confidence.


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## DeepState (5 June 2014)

luutzu said:


> Wrong assumptions.
> 
> Speculative stocks are stocks you buy expecting certain outcome without much real evidence to support such hopes beside your gut feelings or some news or hype you've heard. It could be a blue chip or a micro capped company.
> 
> ...





Are you making this up?



luutzu said:


> Wrong assumptions.
> 
> Speculative stocks are stocks you buy expecting certain outcome without much real evidence to support such hopes beside your gut feelings or some news or hype you've heard. It could be a blue chip or a micro capped company.




Did you just make an assumption?  I think I see one in there.  Wrong assumption.  All assumptions in field of investment are approximations. They are all wrong. Given I could not exactly run a backtest on stocks where an investor or others may purchase or sell stocks which they all uniformly define as having little 'real evidence to support such hopes beside their (your) gut feelings or some news or hype they've (you've) heard', I ran with a working assumption which is clearly known to be an approximation. 




luutzu said:


> Secondly, you're mis-using or misunderstood the application of those charts. That just because a micro fund manager or a stock index or whatever group of stocks generally does well, it does not then mean an investor/trader could do just as well when he engaged in, speculates in, those kind of stocks - that he could only be expected to average or if historical results could predict future returns, could only expect to do similarly well if he buy the index or enough stocks to represent the stocks whose performance has been recorded.




If you read the post, the charts are a statement of what happened to the market and to institutional investors in the small cap arena.  They are an illustration.  It states that if Tom82 works at it, he might do well as well.  You have misunderstood what was written.

Here it is: 







> If your preference is fundamentally oriented investing instead (it doesn't have to be to the exclusion of technical approaches), then the following is what the professional market has been able to deliver. If you work at it over time, you have decent advantages and might reasonably expect to do very well also.







luutzu said:


> In other words, just because no houses have been burnt down in your state, and your house is burning down but you say it couldn't be because on average no house is burning in your state.




If my house was burning in the state then, on average, there is at least one house burning in the state.  You have misunderstood the difference between expectation and outcome. 




luutzu said:


> ... ignore what RY said about Technical analysis could also work... i think he just had a big dinner and was being kind




I use a form of price-based analysis.  It is very different to what is generally described in this forum but, nonetheless, it is investing on a basis other than fundamental analysis.  I am not proud about where things that work arise from.  I'll just use them if they make sense to me.  Certain forms of price-based analysis are very powerful indeed and come with strong economic rationale.  You just haven't been exposed to them and are unlikely to seek them out.


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## luutzu (5 June 2014)

Might also want:

Phillip A Fisher's 'Common Stocks and Uncommon Profit'
Peter Lynch's: One up on Wall Street; Beating the Street.

You can get these, free, from most torrent sites, like... Kickass.to 

---

From memory, Fisher's advise regarding speculative stocks... i think he called it specialised situation, is this: That while you could make incredible amount of profit on them, they are too dangerous for an average investor. That unless you have specialised knowledge about the specific company and its specific industry, it is best to avoid it.

I don't think you could know the health of these small, specialised, companies from its financial reports. So unless you're willng and able to go and talk to the company, its management, and know what you see and what they tells you... you might not want to speculate, and probably best not to speculate it based on its share prices.

----

I remember Buffett saying there are two most important chapters from TII  - they dealt with Mr. Market analogy, market behaviour and another i think was about valuing the business, not the stock.

I personally preferred Fisher's, but Graham does provide that framework in more concrete terms. 

Once you read these 3 guys, you'll find most others are either wrong or just derivatives and your time are better spent reading annual reports to look for opportunities than reading more books.


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## DeepState (5 June 2014)

tom82 said:


> I can report that I have acquired the book The Intelligent Investor by Benjamin Graham (revised edition), I am considering his other book Security Analysis and I have also acquired Roger Montgomery's book Value.able (got it when it first came out a couple years back -limited edition. Also a student of Graham and Buffet).
> 
> I have ordered Louise Bedfords books Trading Secrets 3rd edition, Charting Secrets, The Secret of Candlestick Charting Book and Chris Tates The Art of Trading - 2nd edition.
> 
> ...




You've got quite a library.  Hopefully you'll get the chance to convert it into knowledge.

The Intelligent Investor by Benjamin Graham (revised edition): seek out the general underlying philosophy behind valuation and value. Although replete with technical elements, in the end, he felt that the aims sought in this book could be achieved very simply and with a minimum of fuss.

Security Analysis: Not important.  A bloody big read loaded with accounting adjustments.  I read it and wondered why I did.  This kind of detail is not necessary for spec.  In spec, just the big picture counts unless you are looking for accounting fraud.  You can learn to read and understand detailed financial analysis from Graham and then doing it yourself.

You will get a lot out of Competitive Strategy if you wish to pursue fundamental investment.  It related to the assessment of the competitive position which companies operate within.  It is a complement to Ben Graham.

If you want to get heavy into risk management...best finish your library first and stick to simple rules.  Don't bet what you can't afford to toast.

Cheers


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## tom82 (5 June 2014)

DeepState said:


> You've got quite a library.  Hopefully you'll get the chance to convert it into knowledge.
> 
> The Intelligent Investor by Benjamin Graham (revised edition): seek out the general underlying philosophy behind valuation and value. Although replete with technical elements, in the end, he felt that the aims sought in this book could be achieved very simply and with a minimum of fuss.
> 
> ...




Who was Competitive Strategy by?


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## tom82 (5 June 2014)

luutzu said:


> Might also want:
> 
> Phillip A Fisher's 'Common Stocks and Uncommon Profit'
> Peter Lynch's: One up on Wall Street; Beating the Street.
> ...




I thought there was some books by Fisher, but couldn't think what they were.
Is Common Stocks and Uncommon Profit a book or only an audiobook?


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## DeepState (5 June 2014)

tom82 said:


> Who was Competitive Strategy by?




Michael Porter.  Tom, I recommend that this is a high priority.  It will give you a framework to assess the strategic position of a company which complements how valuation and value are determined.  You can develop your own twists from there, but this was absolutely revolutionary and remains de rigour in business schools today. Porter is a legend.

Are you planning on speculating on FX and index futures as well as spec stocks?


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## tom82 (5 June 2014)

luutzu said:


> Might also want:
> 
> Phillip A Fisher's 'Common Stocks and Uncommon Profit'
> Peter Lynch's: One up on Wall Street; Beating the Street.
> ...




Just did a search for one of those and did a download and the download crashed my internet browser with all my open tabs, changed my home page settings and opened a browser window with some websites, because the browser opened after it being crashed the first time I was not able to recover all open tabs I had open grrrrrrrrrrrrrrrrrrrrrrrr! Peed off now.


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## luutzu (5 June 2014)

A house would be 1 of 1 000 000 [?] houses in a state?
if 1 house burn out of that, it'd be 0.0001%... wouldn't even make the rounding to 3 decimal places.

Was trying to say that just because most mirco does well doesn't mean your 1 or 5 o 50 micro will also do as well. Too statistically insignificant.

----
Anyway RY, might not seem like it, but i think you're a good man. Trust me, i don't say that of many people. Smart? haha... i mean, i don't muck around with people I don't think are smart - that'd be cruel 

Anyway, been procrastinating the past week... time to get back to work.

I've learnt a lot from you guys... i'm a bit surprised at how generous you guys all are.
Alright, let's not come back too often lest i have no one else left to upset


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## tom82 (5 June 2014)

DeepState said:


> Michael Porter.  Tom, I recommend that this is a high priority.  It will give you a framework to assess the strategic position of a company which complements how valuation and value are determined.  You can develop your own twists from there, but this was absolutely revolutionary and remains de rigour in business schools today. Porter is a legend.
> 
> Are you planning on speculating on FX and index futures as well as spec stocks?




Great thanks for that, how long ago was it written / published?

I am trading forex with price action methods, charts, signals look for are low test / high test candles (also called pin bars, also has other names), inside bars, and the hikake pattern. I mainly got the futures books for information on commodities trading.
I have written a trading plan, that covers what signals I can trade and how to trade them, plan has examples of entries and exits and a money management rules and position sizing section of the trading plan.
ETF's / LIC's / A-REITS I have been contemplating in investing in.
Someone mentioned reading company reports and/or their financial documents, I'm on to that as well.


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## luutzu (5 June 2014)

tom82 said:


> Just did a search for one of those and did a download and the download crashed my internet browser with all my open tabs, changed my home page settings and opened a browser window with some websites, because the browser opened after it being crashed the first time I was not able to recover all open tabs I had open grrrrrrrrrrrrrrrrrrrrrrrr! Peed off now.





careful man. 
Best to save these files in your C drive, in case. But PDFs and movies should be OK.

instructions attached.
	

		
			
		

		
	

View attachment torrents.pdf


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## tom82 (5 June 2014)

luutzu said:


> careful man.
> Best to save these files in your C drive, in case. But PDFs and movies should be OK.
> 
> instructions attached.
> ...




It was a binary / executable file and it was under the name of One up on Wall Street; Beating the Street.


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## burglar (5 June 2014)

tom82 said:


> Great thanks for that, how long ago was it written / published?
> 
> I am trading forex with price action methods, charts, signals look for are low test / high test candles (also called pin bars, also has other names), inside bars, and the hikake pattern. I mainly got the futures books for information on commodities trading.
> I have written a trading plan, that covers what signals I can trade and how to trade them, plan has examples of entries and exits and a money management rules and position sizing section of the trading plan.
> ...




I suggest you find something you really like!

Otherwise, it would appear to me, you are spreading yourself a bit thin!

Then again, what would I know:
.I have read three books.
.Did not retire young.
.Try not to trip over same rock twice.


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## luutzu (5 June 2014)

tom82 said:


> I thought there was some books by Fisher, but couldn't think what they were.
> Is Common Stocks and Uncommon Profit a book or only an audiobook?




The one in the instruction is an audio book.
That one's a professionally made audio book.

But it was originally a book.


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## tom82 (5 June 2014)

burglar said:


> I suggest you find something you really like!
> 
> Otherwise, it would appear to me, you are spreading yourself a bit thin!
> 
> ...




What is the third book?


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## luutzu (5 June 2014)

tom82 said:


> It was a binary / executable file and it was under the name of One up on Wall Street; Beating the Street.





Don't download .exe files. Those are programs.
Open your Control Panel, go to Uninstall Programs and see any new application has been installed just then.
Remove those unfamiliar and jsut installed [if there's any].

sorry i just assumed people know these 

But it's well worth it after you get the hang of it...


books are:  .pdf; .epub
movies are .mp4, .avi etc.


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## tom82 (5 June 2014)

luutzu said:


> Don't download .exe files. Those are programs.
> Open your Control Panel, go to Uninstall Programs and see any new application has been installed just then.
> Remove those unfamiliar and jsut installed [if there's any].
> 
> ...




Yup thanks uninstalled the stuff it installed.

I know of them and heard of them but not familiar with them and never found a decent guide or how to about them.

Aware of some of the file types for movies and books (mainly pdf's).

Could consult one of my IT specialists / consultants for further advice.


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## tom82 (5 June 2014)

Been trying to find an alternative to term deposits as there interest rates aren't the best at the moment.
Thought about Bonds, but that requires another book and/or learning to understand them adequately.


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## luutzu (5 June 2014)

tom82 said:


> It was a binary / executable file and it was under the name of One up on Wall Street; Beating the Street.




Follow the instructions to download, don't click on weird links.

If you need to download software/exe files, read the comments by other users first.

Then best to save download to C drive so if there's a virus, you can reformat your PC and keep your other files on D drive etc [assuming you partitioned your PC to at least 2 drives yea?]

also back up often all your important files.


Sounds like it's dangerous but i've used it for years and all my files are still safe.


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## burglar (5 June 2014)

tom82 said:


> What is the third book?




Louise Bedford's, "Candlestick Patterns"


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## luutzu (5 June 2014)

tom82 said:


> Yup thanks uninstalled the stuff it installed.
> 
> I know of them and heard of them but not familiar with them and never found a decent guide or how to about them.
> 
> ...





Your best and cheapest IT consultant is Google 

And i don't know about bonds, but with current low interest rates, best not to buy them and lock yourself in.


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## tom82 (5 June 2014)

luutzu said:


> Follow the instructions to download, don't click on weird links.
> 
> If you need to download software/exe files, read the comments by other users first.
> 
> ...




Dont think I ever partitioned a hdd for a windows box, have plenty of times for linux (Debian) and BSD boxes.

My D: drive is a dvd writer/reader.
Yeah have a backup disc in the drive at the moment from before I tried windows 8, didn't like it so formatted and re installed 7, but yes need to backup again sometime.
Also using Dropbox.

I get good free service from my IT specialists, a mate runs his own business the other guy I know from school


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## tom82 (5 June 2014)

luutzu said:


> Follow the instructions to download, don't click on weird links.
> 
> If you need to download software/exe files, read the comments by other users first.
> 
> ...




Often hear people raving about torrents but Ive never had a successful experience in getting what I want / expect  and some websites disappearing.


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## luutzu (5 June 2014)

tom82 said:


> Been trying to find an alternative to term deposits as there interest rates aren't the best at the moment.
> Thought about Bonds, but that requires another book and/or learning to understand them adequately.




I think you're looking to learn how to invest yea? Not sure which ways there are, and which works?

Go to www.youtube.com

Type in keywords and watch the videos, introductions etc...

Watch about charting/technical analysis, watch about Warren Buffett/Charles Munger, Graham/value investing, fundamental analysis...

These will give you an overview of the many approaches out there, and it should quickly narrow your preference for further detailed study.


That's how i'd do it because when you read books, at least for me, it will take me a while to absorb and try to understand what's being said... and sometime, if i spend enough time to try to understand something, i got no energy left to step back and see if what they're saying makes sense or not - too busy with the details to see the bigger picture.

But that's just me... my wife could read and read very well so she could finish most books in two days... me it would be a week, spread over a month.


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## tom82 (5 June 2014)

burglar said:


> I suggest you find something you really like!
> 
> Otherwise, it would appear to me, you are spreading yourself a bit thin!
> 
> ...




Strange names for books those
Did not retire young.
Try not to trip over same rock twice.


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## luutzu (5 June 2014)

tom82 said:


> Often hear people raving about torrents but Ive never had a successful experience in getting what I want / expect  and some websites disappearing.




When it disappear, google "what happen to ..."

the one in the info is pretty reliable.


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## luutzu (5 June 2014)

tom82 said:


> Strange names for books those
> Did not retire young.
> Try not to trip over same rock twice.




hahaha... you either have a good sense of humour or it's way too late to read english


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## burglar (5 June 2014)

tom82 said:


> Strange names for books those
> Did not retire young.
> Try not to trip over same rock twice.




Louise Bedford's Candlestick Patterns

Benoit Mandelbrot, "The (Mis)behavior of Markets"

"Taming the Lion" - Richard Farleigh


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## tom82 (5 June 2014)

luutzu said:


> hahaha... you either have a good sense of humour or it's way too late to read english




What those aren't books? Yeah its getting late, or is it early?
Time for a cigar I think...


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## tom82 (5 June 2014)

burglar said:


> Louise Bedford's Candlestick Patterns
> 
> Benoit Mandelbrot, "The (Mis)behavior of Markets"
> 
> "Taming the Lion" - Richard Farleigh




Hey thanks for that!


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## burglar (5 June 2014)

tom82 said:


> Hey thanks for that!




Re Richard Farleigh: 

My mentor said, "He lost billions in the Tech-wreck, why I should listen to him?"

Because he had millions left!


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## luutzu (5 June 2014)

burglar said:


> Re Richard Farleigh:
> 
> My mentor said, "He lost billions in the Tech-wreck, why I should listen to him?"
> 
> Because he had millions left!




So if Richy starts out with a million and lost at the same ratio, how much will be have left?


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## DeepState (5 June 2014)

tom82 said:


> Great thanks for that, how long ago was it written / published?
> 
> I am trading forex with price action methods, charts, signals look for are low test / high test candles (also called pin bars, also has other names), inside bars, and the hikake pattern. I mainly got the futures books for information on commodities trading.
> I have written a trading plan, that covers what signals I can trade and how to trade them, plan has examples of entries and exits and a money management rules and position sizing section of the trading plan.
> ...




Porter wrote "Competitive Strategy" in 1980.  It's been reprinted about 60 times since.  It is a bedrock for strategic analysis and entirely relevant for spec.

Also, Burglr mentioned Benoit Mandelbrot.  This is a book on why book learning doesn't work as expected.  It will explain why you have to unlearn at least half of what you thought you learned from all the reading you plan on doing.  I can recommend it highly once you have the basics nailed.

You seem to be trying to cover a lot of ground.  Hopefully you have the bandwidth.  Having a plan to work from and adjust from is a great idea.  As you update your knowledge with experience and further learning, you'll move to becoming (more of) an expert.  After you have nailed the basics and then Mandelbrot (to start with then, maybe, Nicholas Taleb after that) and you want to progress more deeply into the process of expertise development, then I can also suggest getting whatever you can from K Anders Ericsson.  If you need a book to be named then try the "Cambridge Handbook for Expertise and Expertise Development (2006)".  Ericsson was one of the editors.


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## DeepState (5 June 2014)

tom82 said:


> Been trying to find an alternative to term deposits as there interest rates aren't the best at the moment.
> Thought about Bonds, but that requires another book and/or learning to understand them adequately.




Here's the latest on TDs.  With a curve like this, it's very hard to buy bonds instead with a view to holding to maturity. Bottom of investment grade would barely get you the TD rate for equivalent maturity (not even)...and they are not government guaranteed.


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## burglar (5 June 2014)

luutzu said:


> So if Richy starts out with a million and lost at the same ratio, how much will be have left?




He started out naked and broke ... just like you!


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## luutzu (6 June 2014)

burglar said:


> He started out naked and broke ... just like you!




so he's going to be a Zen Master then? Coming into the world with nothing, shall leave it with nothing


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## DeepState (8 June 2014)

The rise of the NASA Monkeys....and you thought I was joking.

From the Economist:


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## Wysiwyg (9 June 2014)

DeepState said:


> The rise of the NASA Monkeys....and you thought I was joking.



Oh random selection is the easy bit. Position sizing and exit strategy requires cognition.


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## DeepState (9 June 2014)

Wysiwyg said:


> Oh random selection is the easy bit. Position sizing and exit strategy requires cognition.




This may seem contradictory, but I agree.  In the presence of an edge or any kind - which can be greater in some specs than elsewhere, poor risk management - which includes the concept of position sizing amongst other things - can send your edge back towards zero.  On exits, the monkeys would not be expected to produce continual outperformance unless they had to exit and renew their positions periodically.  The triggers for these 'exit strategies' can be anything, but they need to refresh their positions in particular ways to extract maximum benefit.

None of this requires any knowledge of fundamentals whatsoever and is thus and confirmation of sorts that fundamentals are not be required at all to be profitable.


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## odds-on (9 June 2014)

DeepState said:


> This may seem contradictory, but I agree.  In the presence of an edge or any kind - which can be greater in some specs than elsewhere, poor risk management - which includes the concept of position sizing amongst other things - can send your edge back towards zero.  On exits, the monkeys would not be expected to produce continual outperformance unless they had to exit and renew their positions periodically.  The triggers for these 'exit strategies' can be anything, but they need to refresh their positions in particular ways to extract maximum benefit.
> 
> None of this requires any knowledge of fundamentals whatsoever and is thus and confirmation of sorts that fundamentals are not be required at all to be profitable.




I came to this conclusion some time ago. It requires no knowledge of anything. Just need to be willing to pull the trigger and enter the market. Position sizing and exit strategy are everything. 

Some thoughts on position sizing and exit strategy from the experienced would be appreciated.


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## luutzu (9 June 2014)

Serious?

If you don't know why you get into something, what make you think you would know why and when you ought to get out of it?

When you've lost "too much" or when you've gained "enough"?

Probably best to exit the same way you entered: get those monkeys back and tell them that this time, the ones they hit will mean the ones you'll sell... and if they hit those they didn't tell you to buy before... well, probably short those ones or something.

And i thought people had stopped reading tea leaves and goat's intestines a long time ago.


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## DeepState (9 June 2014)

luutzu said:


> Serious?
> 
> And i thought people had stopped reading tea leaves...a long time ago.




Check your assumptions. 




She is located in the Sydney area. I'm sure she can take a booking. 

However, you raise valid points for some scenarios but not all, as it turns out.


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## luutzu (9 June 2014)

DeepState said:


> Check your assumptions.
> 
> View attachment 58268
> 
> ...




Na i take my readings from this white bearded guy  (yes, a White guy with long beard haha) atop the Great Blue Mountains.


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## tom82 (16 June 2014)

So I ordered Louise Bedfords books and one of Chris Tates books. I now have, Trading Secrets 3rd edition, Charting Secrets revised edition, The Secret of Candlestick Charting and The Art of Trading.

What technical methods do you use?


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## tom82 (17 July 2014)

So you think technical is the way to go instead of fundamentals?


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## burglar (17 July 2014)

tom82 said:


> So you think technical is the way to go instead of fundamentals?




Fundamentals was once a great way to go!
Not sure anymore!

Too many things have changed .... 

Computers
the internet
The dot.com bubble
Global financial crisis


The market is more like a casino than ever it was.

So what is my take on tech vs fundies.

A fundy needs to know that traders exist.
Whenever you ask yourself "What just happened then?",
and you don't get an answer, chances are, traders are at work.

A fundy needs to work hard.
Checking calculations.
Understanding balance sheets.
Have faith in companies ... directors ... accountants et al.


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## DeepState (17 July 2014)

tom82 said:


> So you think technical is the way to go instead of fundamentals?




This could get me killed in here but, what the heck, bring it (actually, don't)....some technical analysis is very powerful. There are different classes of technical analysis though, without elucidating. My statement of 'very powerful' certainly does not apply equally to the different types.  In and amongst this, fundamental analysis ultimately grounds security prices over time.  If you have a time frame that extends into years, then knowledge of fundamentals would be advisable.  If you day trade, you don't need to open a report.

You'll need to find your own habitat.


----------



## So_Cynical (17 July 2014)

burglar said:


> Fundamentals was once a great way to go!
> Not sure anymore!
> 
> A fundy needs to work hard.
> ...




I don't think a fundy needs to work that hard ~ at least not with small simple to understand company's, with the bigger stocks there is just to much to take on board anyway, best to keep it simple and focus on what is important, its important to put a bit of work into timing, deciding at what price level you should be buying into.

Deciding what's the big picture and what's likely to happen (re this stock) at some point in the near future.

-----------------------

On the subject of spec stocks i just had a look at a new one (new to me) and as usual its pretty hard to have em based on pure fundamentals...burning cash, looking for partners/funding, drilling holes and tabling unspectacular results.


----------



## burglar (17 July 2014)

So_Cynical said:


> ... with the bigger stocks there is just to much to take on board anyway, best to keep it simple and focus on what is important ...




I once expressed an interest in a Telstra float, but the document was so complex I decided not to bother.
So yes, I agree with you!


----------



## Faramir (21 July 2014)

When does a company stops being a Speculation and converts into a good stock?
When it makes a one off profit or when it makes a series of profit announcements?
When an analyst on TV or AFR say "What a wonderful stock!"
What is/are the criteria of a spec stocks being changed to a good stock?


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## ROE (22 July 2014)

There are dozen thread on these sort of topics and it will always come back to TA vs FA
there is no perfect solution due to time, personal circumstances and personality; you can make money employ a wide range of strategies

build up some of the knowledge and get exposed to the market, after a while you will figure it out
which strategies works for you consistently ... stick within that circle, refine, enhance and  be an expert in that area.

The Result

Gold laboreth diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field.


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## tom82 (27 July 2014)

Providing that there is an uptrend (which one has established), could one wait for a retrace of price of a company back to the 30ema, wait for a bulish close and then enter long position in the company?
Comments, thoughts?


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## DeepState (27 July 2014)

Where in the spectrum in the rainbow does blue turn to indigo and then turn to violet? There is no sharp change in classification nor single metric that accurately captures this stuff despite an understandable desire to do so.

Given ROE's mention of gold, I'll start by saying if you want fiat money then there is basically negligible speculation in the coupons of bonds and their final payment as issued by sound governments.  That's different from saying zero risk.  You know the cashflows and can discount them.  In contrast, you get a concept stock where the possibility of (or range of) revenue/E/CF/D is basically not capable of being meaningfully estimated and hence cannot estimate value beyond cash on balance sheet.  That's toward the spec end.

Speculation: the forming of a theory or conjecture without firm evidence (source: Page & Brin)

...better evidence, less speculation.  Having investment skill also reduces the extent of speculation in the investment decision.  Hence, for a given stock, a holding may be more speculative for one investor than another who is better informed or able to make superior judgments.

So at least two things make up the issue of speculation vs the opposite definition:

1. the fundamentals
2. your ability to use them for benefit.

Somewhat unusually, 2. can also include pure TA.


----------

