For bottom pickers and knife catchers

[Schmuckie]

Re: Bottom pickers and knife catchers

I caught one bottom and one falling knife in recent months, and have profited immensely on both.

The first was BMN around the time of the brokerage problems. This was sheer coincidence, as I was looking for a proxy for my husband's company (I could go to jail for insider trading if I bought and/or sold his shares). I'm up about 50%.

Around the same time, I bought a Canadian gold exploration company called Aurelian Resources with a world-class find in Ecuador, outstanding management and plenty of cash for operations. The Ecuadorian government declared a mining moratorium while it sorted out its mining laws. The share price fell from close to $10 to $3.05 in three days. We happened to have a geologist friend with classmates working in Ecuador, who told us what the underlying issues were. Basically, 20-year-old concessions were still on the books and some of the companies didn't even exist anymore. Others were granted as free friends-and-family concessions by the former government regime. The situation had become so complicated in Ecuador that the only way to quiet the noise was to declare a moratorium.

With this in mind, and while the price was still falling, I immediately placed an order for 500 shares at $3.80; 1,000 shares at $3.25; and 10,000 shares if it fell to $1.50. The shares bottomed at $3.05 the same day I got my 1,500 shares. The very next day, the situation stabilized when the Ecuadorian government announced it would be allowing "responsible" mining to go ahead but everything was on hold for up to 180 days while a new mining law was drafted. The shares then shot back up into the $4.50 range. I later learned that the Canada Pension Plan is the largest institutional shareholder of Aurelian and a great deal of Canadian diplomatic pressure was placed on the government of Ecuador. The shares are now trading in the mid-$5.00 range. Drafts of the new mining law are being circulated, and -- not surprisingly -- it's a clear, responsible law that actually supports mining while taking care of housekeeping and environmental matters. And it was being drafted with Canadian and Chilean government assistance.

With 20/20 hindsight, what I've learned from this is that one can do very well catching falling knives ... if the reason it falls has nothing to do with fundamentals, but rather, unrelated circumstances.

I would be very careful about picking a business that's hit bottom because of its own problems, unless management has been completely replaced with experienced turnaround specialists.

 

[bunyip]

Re: Bottom pickers and knife catchers

So traders picking a potential bottom can't do that either?

One thing that you have jumped the gun on here, is that there is no requirement to call a bottom before the fact. A better way is to wait for clear signals that the bottom may be in. In FA, that may be when a stock has gone well under NTA, or extremely cheap on IGV to MC, or Oz au to MC, or whatever. In TA, you can pick a potential bottom when a stock hits long term support, and bounces, breaks resistance, and then that resistance turns support.

BMN was mentioned earlier, and fit both FA and TA requirements for a potential bottom.

On this chart you will see the stock hit very strong long term support at $1.50. After going under a dragon fly doji flew in and was followed up by a very strong white candle. The stock tested $1.50 in about 4 occasions and it held. It then started making higher lows and highs.

4 May:



I don't like doing it myself, always fraught with danger, but if you see one, and set stops etc, it can be very profitable.

I think we're going to see a few bottoms in the coming months (years? )

(BMN will crash now, lol)

So traders picking a potential bottom can't do that either?

Sure, potential bottom pickers can limit their risk with stop losses. But a potential bottom occurs while a stock is still downtrending, whereas a confirmed bottom can only be confirmed after the stock has started a new uptrend.
If they buy the stock when it's made a 'potential' bottom, as opposed to a confirmed bottom, then they're buying a downtrending stock and they'll get stopped out frequently.
Different story if they buy after a confirmed bottom.....the stock in now technically uptrending and their stop loss has far less chance of being hit.


One thing that you have jumped the gun on here, is that there is no requirement to call a bottom before the fact.

Indeed there is not. Yet calling it before the fact is exactly what most bottom pickers and falling knife catchers attempt to do. And it frequently costs them dearly.

A better way is to wait for clear signals that the bottom may be in. In FA, that may be when a stock has gone well under NTA, or extremely cheap on IGV to MC, or Oz au to MC, or whatever. In TA, you can pick a potential bottom when a stock hits long term support, and bounces, breaks resistance, and then that resistance turns support.

When the stock completes the technical picture you've described above, it's clearly in an uptrend. The bottom in this case would be a confirmed bottom, not a potential bottom. You're waiting for a new uptrend that confirms the bottom is in. If you buy the stock once a new uptrend begins, you're a trend trader, not a bottom picker. You may look for fundamental factors to support the technical picture, but the fact remains that you're trading the trend, not bottom picking.

BMN was mentioned earlier, and fit both FA and TA requirements for a potential bottom.
On this chart you will see the stock hit very strong long term support at $1.50. After going under a dragon fly doji flew in and was followed up by a very strong white candle. The stock tested $1.50 in about 4 occasions and it held. It then started making higher lows and highs.

Again, you're using technical analysis to confirm the bottom. That's not bottom picking and it's not catching a falling knife. It's intelligent, commonsense analysis of the price action. You have an opinion of what the stock might do, and you have the sense and the patience to wait for the price action to confirm your view.
I commend you for this kind of analysis.....if everyone invested like this, there would be far less hard luck stories on this forum from people who have been badly mauled by blindly buying a 'value' stock that was falling, and fell a lot further after they bought it.

 

[Sean K]

Re: Bottom pickers and knife catchers

Bunyip, thanks for the reply.

The aim of this thread is to find bottoms, WITH ANALYSIS.

Surely this means you need some justification for calling it. That in turn means that there is some FA and or TA supporting the 'bottom'.

That covers all your counter arguments.

Let's move on and make the most of the chance for people to provide some ideas and some analysis to support their assertions.

Cheers,
kennas

PS, got any bottoms for us?

 

[bunyip]

Re: Bottom pickers and knife catchers

And bunyip, you're assuming this is a hold and hope thread. It is not. You trade every stock on it's merits. I'm not sure why you've jumped to all these assumptions about trading oversold, undervalued stocks.

I must say I agree in buying into trends in general. That's why I don't buy downtrending stocks unless there's a high probablility of a bottom being in. That means some FA disconnect, some technical signals, and higher lows and highs. Also, no need to pick and obsolute bottom, but picking close to the bottom and start of an upward trend can be very rewarding. Like with breakouts. The closer you pick the break, the better. That's the point of the 'potential breakout' thread too. There's no buying and hoping here.

As for knife catching, I see this as picking things that have reacted extremely badly to some type of news and get way oversold on market fear. Plenty of examples of those recently.

Commiserations to your friends.

No Kennas, I'm not assuming that this is a buy and hold thread. I'm simply drawing on my knowledge of those who play the stockmarket.
Of the hundreds of investors I've spoken to over the years, very few of them ever had any contingency plan if their stock went against them. Most of them simply adopted the HAH approach to their stock investments.
Surveys of brokers are conducted from time to time, and have revealed that less than 10% of market investors have any kind of risk management in place.
I very much doubt if many of the people who try to bottom pick by buying what they consider to be value stocks, are going to cut their losses quickly if the stock goes against them. Most of them are going to give the stock some time to conform to their expectations.
In the meantime the stock goes against them in a big way, and now they're even more inclined to hold and hope because of their reluctance to accept what has now become a serious loss.
I doubt if you personally would do this.....I can see from your general comments that you're a more sophisticated investor/trader who knows somehting about technical analysis and risk control. However, I believe you're quite likely something of a rarity among market players. Very few of them operate as you do.
You appear to consider yourself, to some extent at least, as a bottom picker. I suggest that you're nothing of the kind. The very fact that you agree with buying into uptrends in general, that you don't like buying downtrending stocks, that you like to see higher highs and higher lows, etc etc, tells me quite clearly that you're primarily a trend trader, with a bit of back up from fundamental research.
Sure, you may form opinions about a stock being oversold and perhaps having formed a bottom, but as far as I can see, you don't race in with a buy order at that stage.....you wait for the subsequent price action to confirm your views.

 

[Trembling Hand]

Re: Bottom pickers and knife catchers

Of the hundreds of investors I've spoken to over the years, very few of them ever had any contingency plan if their stock went against them. Most of them simply adopted the HAH approach to their stock investments.
Surveys of brokers are conducted from time to time, and have revealed that less than 10% of market investors have any kind of risk management in place.

You are running in circles now. That equally applies to any entry. Simply being a trend trader doesn't put you in the elite group that honour their stops. Its not the method that counts its the application.

 

[Sean K]

Re: Bottom pickers and knife catchers

No Kennas, I'm not assuming that this is a buy and hold thread. I'm simply drawing on my knowledge of those who play the stockmarket.
Of the hundreds of investors I've spoken to over the years, very few of them ever had any contingency plan if their stock went against them.

bunyip,

I did not read beyond this.

Sorry.

I have already said that any investment/trade needed contingency stops.

Or plans.

Or whatever.

 

[bunyip]

Re: Bottom pickers and knife catchers

Bunyip, thanks for the reply.

The aim of this thread is to find bottoms, WITH ANALYSIS.

Surely this means you need some justification for calling it. That in turn means that there is some FA and or TA supporting the 'bottom'.

That covers all your counter arguments.

Let's move on and make the most of the chance for people to provide some ideas and some analysis to support their assertions.

Cheers,
kennas

PS, got any bottoms for us?

Do I have any bottoms for you?
No, I'm afraid not. I'm from the school of thought that says 'Be a bull in a bull market and a bear in a bear market'.
I have absolutely no interest in trying to be a bull in a bear market. Since we're currently in a bear market, my way of playing it is to buy Put options on downtrending stocks in downtrending sectors.
To implement this strategy I rely heavily on bottom pickers to buy downtending stocks. Their buying pressure creates rallies that usually fizzle out in a few days or a week, and often culminate in one of the candlestick top reversal patterns such as Bearish Engulfing patterns, Gravestone Dojis, and Shooting Stars.
When one of these top reversal candlestick patterns shows up after a few days of rallying prices, it clearly suggests that the rally is finished and the downtrend is about to resume. This is an ideal time buy a Put option.
The point is that without bottom pickers, these temporary rallies would never occur, and neither would the reversal patterns that call the end of the rally and the resumption of the downtrend.
That's why I said with the utmost sincerity in one of my earlier posts that I appreciate bottom pickers.

 

[spooly74]

Re: Bottom pickers and knife catchers

I'm not sure if we're getting to the point of the market hitting a bottom, but it's time we longer term investors started looking at some potential value in the market, and where our cash could be directed. Bottom pickers.

Of course, you'd have to give a reason for the nomination, in whatever basic form. FA and/or TA, or whatever, on why something has gone pear shaped but which might be a good opportunity.

Any thoughts?

Though I`d include this mutt for consideration.
Clearly underperformed this fin year end compared to the underlying assets of the company and where the fundamentals stood 2/3 years ago.

Intec needs to tell the market that is has the ability to build the plant.
Intec needs an announcement by CMR or Buffalo Gold (anyone will do) to use one of its processes.
If it can achieve the above goals the sp should appreciate accordingly.

My saga in this one is as follows ...bought at 20c, bought more at 16c ....sold the lot at 12.5c.
Bought again at 7.3c (day before recent rights issue )
Bought at 5c after the inevitable drop to rights issue sp.
I intend to sell it at 1c if it gets there and take my mates out on the turps or put me down in the spreadsheet for 2 years from now.

 

[Sean K]

Re: Bottom pickers and knife catchers

Do I have any bottoms for you?
No, I'm afraid not. I'm from the school of thought that says 'Be a bull in a bull market and a bear in a bear market'.
I have absolutely no interest in trying to be a bull in a bear market. Since we're currently in a bear market, my way of playing it is to buy Put options on downtrending stocks in downtrending sectors.
To implement this strategy I rely heavily on bottom pickers to buy downtending stocks. Their buying pressure creates rallies that usually fizzle out in a few days or a week, and often culminate in one of the candlestick top reversal patterns such as Bearish Engulfing patterns, Gravestone Dojis, and Shooting Stars.
When one of these top reversal candlestick patterns shows up after a few days of rallying prices, it clearly suggests that the rally is finished and the downtrend is about to resume. This is an ideal time buy a Put option.
The point is that without bottom pickers, these temporary rallies would never occur, and neither would the reversal patterns that call the end of the rally and the resumption of the downtrend.
That's why I said with the utmost sincerity in one of my earlier posts that I appreciate bottom pickers.

Are we in a bear market? Need to define that.

When one of these top reversal candlestick patterns shows up after a few days of rallying prices, it clearly suggests that the rally is finished and the downtrend is about to resume. This is an ideal time buy a Put option.

So, any takers? Look forward to your signal when it appears. Looking forward to it.

The point is that without bottom pickers, these temporary rallies would never occur, and neither would the reversal patterns that call the end of the rally and the resumption of the downtrend.

And, the point of this thread is to take advantage of that for ASF members.

Let's help each other take advantage of market fundamentals and psychology and not try to point score.

After a couple years of this, it becomes tiring.

 

[Sean K]

Re: Bottom pickers and knife catchers

Though I`d include this mutt for consideration.

Golly, woof woof.

I have been a long time follower of this puppy.

We need to talk about potential bottoms here in more anal detail.

 

[Bushman]

Re: Bottom pickers and knife catchers

top reversal candlestick patterns

Maybe we should have a Top Reversal Candlestick Pattern thread?

The point of this thread is to find fundamentally undervalued stocks that may have been sold down due to -
1. their association with a sector that has been sold down hard ie A-REITs, financials; or
2. the bursting of a commodity price bubble ie uranium, zinc; or
3. insert any other reason why a stock may be oversold based on their fundamentals.

If you get in nearer the bottom of an oversold stock with good fundamentals (including credit by the way), you will do well in the medium to long term as the market will not ignore these once the fear and panic subsides.

Otherwise you could be a trend analyser, day trader, short seller etc who reviews technicals and makes buck by identifying top reversal candlestick patterns (whatever they might be) and you too will do well.

But why not create a separate thread and talk about it there. You can call it the 'man with itchy bottom wakes up with smelly finger' thread.

 

[subaru69]

Re: Bottom pickers and knife catchers

I'm not sure if this is a falling knife or one at the bottom. Either way I'm not willing to pick it yet.

RCY last trade at 31c and dropped by 2/3rds since listing.
Going ex-div tomorrow: 3c, ie annualised return of ~20% @ current SP.

For those that don't know, these guys are building the N-S bypass road in Brisbane. They're 3 months ahead on schedule, are backed by the State Gov for cost over-runs and recently made preferred bidder for the new Airport Link.

I know infrastructure is unpopular but I can't work out why it's tanked. I would slowly start buying in but I'm already too stretched on some blue chips I thought had made a bottom 2 weeks ago. The way things are going it'll lose another 20%ex-div and I'll be glad I didn't buy any.

Sorry about my lack of analysis, this is my 1st post.

 

[MichaelD]

Re: Bottom pickers and knife catchers

Successful bottom pickers are like barrel riders going over Niagara Falls.

Of 1,000 riders, 100 survive
Of 100 who then go a second time, 10 survive
Of 10 who then go a third time, 1 survives and writes a book about how to go over Niagara Falls in a barrel.

The point relevant to this thread;

1. The odds are against you.
2. You are influenced unduly by survivor bias. Those that beat the odds are the ones that crow about it. The ones that were destroyed by bottom picking just stop posting.

 

[Trembling Hand]

Re: Bottom pickers and knife catchers

Successful bottom pickers are like barrel riders going over Niagara Falls.
1. The odds are against you.
2. You are influenced unduly by survivor bias.

I'm not that fussed which way people choose to lose their money.

BUT out of all the entries it does give you the tightest of stops if using the out on a new low tick. With index trading its my favourite play as well as jumping in front of a running train. Play them day in day out and my barrel is still floating.

But as always it aint the method its how you manage that method, I Think?

 

[MichaelD]

Re: Bottom pickers and knife catchers

But as always it aint the method its how you manage that method, I Think?

You said it.

You'd be the only bottom picker on this thread that uses it correctly as a low risk entry. All the rest use it to be right in their analysis.

 

[Ferret]

Re: Bottom pickers and knife catchers

Michael,

It surprises me you are so much against bottom picking.

I've read many posts by you where you point out that successful trading doesn't involve having a high percentage of winners, it is about limiting losses from the losers and making strong profits from the winners. I agree with this.

Surely this method can be carried over to bottom picking, where the scope for having strong winners is great.

Ferret

 

[Sean K]

Re: Bottom pickers and knife catchers

You said it.

You'd be the only bottom picker on this thread that uses it correctly as a low risk entry. All the rest use it to be right in their analysis.

Obviously one that didn't survive the falls.

We've already discussed some of the priciples of finding a bottom, that involve both FA and TA. And the management of the position.

Move on.

 

[MichaelD]

Re: Bottom pickers and knife catchers

It surprises me you are so much against bottom picking.

I've read many posts by you where you point out that successful trading doesn't involve having a high percentage of winners, it is about limiting losses from the losers and making strong profits from the winners. I agree with this.

Surely this method can be carried over to bottom picking, where the scope for having strong winners is great.

The odds of something in a downtrend reversing its downtrend are lower than random. The odds of something in an uptrend continuing in an uptrend are higher than random. Why make it even harder than necessary to take a profit from the markets?

You can survive bottom picking if you couple it with tight risk control - i.e. pick what you think is the bottom but quickly admit you are wrong when it isn't the bottom. This can indeed be a great low risk entry. The problem occurs when you refuse to quickly admit you're wrong and get out.

Kennas - I for one don't see that this has been covered adequately in this thread. All I see are posts from people who want to bottom pick to prove how right and clever they are about picking bottoms - fatal to trading capital if you don't couple it with a robust stop loss. Those that are warning about the perils of this approach are being torn down.

My version of "bottom picking" is two pronged;
1. I have a short term system which goes long if the Dow falls a certain amount. This has made good money for me lately.
2. Even in this bear market there have been uptrenders - I've bought when my system told me to buy during the first big leg down and ended up in oil, coal and iron ore. Some of these have been stopped out for nice profits and others continue to uptrend - all in all, I've been better off participating in the market than stepping aside. My system is now signalling buys again, so I'm buying. Some would call this bottom picking. I'm just following my system.

The difference between what I do and what others are espousing on this thread are subtle and yet powerful;
1. I have backtested, validated systems at work here.
2. I take my stops without question.

 

[Sean K]

Re: Bottom pickers and knife catchers

Kennas - I for one don't see that this has been covered adequately in this thread. All I see are posts from people who want to bottom pick to prove how right and clever they are about picking bottoms - fatal to trading capital if you don't couple it with a robust stop loss. Those that are warning about the perils of this approach are being torn down.

My version of "bottom picking" is two pronged;
1. I have a short term system which goes long if the Dow falls a certain amount. This has made good money for me lately.
2. Even in this bear market there have been uptrenders - I've bought when my system told me to buy during the first big leg down and ended up in oil, coal and iron ore. Some of these have been stopped out for nice profits and others continue to uptrend - all in all, I've been better off participating in the market than stepping aside. My system is now signalling buys again, so I'm buying. Some would call this bottom picking. I'm just following my system.

The difference between what I do and what others are espousing on this thread are subtle and yet powerful;
1. I have backtested, validated systems at work here.
2. I take my stops without question.

Michael, you are right, it isn't covered in enough detail, but we are not all professional mechanical traders like you. I am attempting to get some analysis out of members to justify their calls and to also discuss some of the principles of when a stock is oversold fundamentally, or has found a bottom technically. This has been mentioned in the thread and we will work on the detail as we go. Please don't have TA blinkers on when looking at this thread, there are many people who are fundamental investors who actually make money here also. They might have trade management plans just as you do and if not, then this thread may be another source of information or lesson to be incorporated into their investment plan. Some people who aren't as experienced as you may find some value out of the discussion.

So, got any bottoms for us?

 

[Sean K]

I'll try and and update this every couple of days.

If any of the detail is incorrect let me know.

And, if anyone sells, let me know.

Interesting exercise.