Spec stocks
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Faramir
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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
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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.
"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.
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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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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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.
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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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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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Not really, read it again.
The exit may be a close below the red trailing line with a one bar delay open also below red until trend established.
So what resources do you suggest on "proper" investing?
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.
Wysiwyg
Everyone wants money
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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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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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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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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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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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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.
Just two personal scans, one built from scratch, the other a combination of mine and bits from others.
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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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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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.
