Moving Average as an indicator for entry into the market?

[Nortorious]

Hi All,

Relatively new to ASF and the sharemarket. Currently have capital of $10k to start me off in long term investing. I'm looking at selecting stocks using a combination of fundamental and technical analysis with the goal of capital growth and passive income (through dividends).

I'm trying to time my entry to ensure that short term the gains are good, and long term they are even better.

What indicators do people use for entering the market for long term investments (and short term). Are moving averages valuable to analyse or is this more for short term trading strategies?

Look forward to hearing from some of the wiser investors and learning from you!

Thanks
Nortorious

 

[So_Cynical]

Hi All,

Relatively new to ASF and the sharemarket. Currently have capital of $10k to start me off in long term investing. I'm looking at selecting stocks using a combination of fundamental and technical analysis with the goal of capital growth and passive income (through dividends).

I'm trying to time my entry to ensure that short term the gains are good, and long term they are even better.

Trying to time your entry hey....want to ensure your gains are good/better?

So are you looking at buying stocks that are charting downwards? stocks that have a falling share price? or perhaps a flat share price? stocks with short term uncertainty's?

What's the plan?

 

[skc]

Hi All,

Relatively new to ASF and the sharemarket. Currently have capital of $10k to start me off in long term investing. I'm looking at selecting stocks using a combination of fundamental and technical analysis with the goal of capital growth and passive income (through dividends).

I'm trying to time my entry to ensure that short term the gains are good, and long term they are even better.

What indicators do people use for entering the market for long term investments (and short term). Are moving averages valuable to analyse or is this more for short term trading strategies?

Look forward to hearing from some of the wiser investors and learning from you!

Thanks
Nortorious

Why time your entry based on indicators?

There are other alternatives
- based on events... a profit upgrade, new contracts, asset sales
- based on margin of safety... e.g. net asset value = $1, share price = 50c

I found event-based entry quite useful - markets usually get new information wrong on new information - either they over- or under-react. Provided that the fundamental analysis is correct, buying under-reaction to good news can be a decent strategy.

 

[Nortorious]

Trying to time your entry hey....want to ensure your gains are good/better?

So are you looking at buying stocks that are charting downwards? stocks that have a falling share price? or perhaps a flat share price? stocks with short term uncertainty's?

What's the plan?

Thanks for the response.

The stock which I have been analysing, fundamentally is in a good position, technically is trending upwards (has just turned the corner after a downward trend). The current price broke through the moving average about a week or so ago and has stayed above it since.

As I am looking at long term investment (capital growth + income), the stock I'm watching provides a tax adjusted yield dividend of 5.0% and the forecast earnings per share are good.

What other things should I be considering when selecting a stock for long term? And getting back to my initial thread, what should I be looking at when timing entry?

 

[Nortorious]

Why time your entry based on indicators?

There are other alternatives
- based on events... a profit upgrade, new contracts, asset sales
- based on margin of safety... e.g. net asset value = $1, share price = 50c

I found event-based entry quite useful - markets usually get new information wrong on new information - either they over- or under-react. Provided that the fundamental analysis is correct, buying under-reaction to good news can be a decent strategy.

Thanks for the contribution skc.

I had not considered event based entry. I guess this is the benefit of being involved in online forums - learning from others perspectives and experiences.

Thanks again!

 

[tech/a]

what should I be looking at when timing entry

Realizing that entry is a minor part of the picture.
Actually buying it.
Putting in place a contingency if your analysis is proven incorrect.(Risk mitigation)
You'll get it wrong more often than right.
You can be right 25% of the time and still be fabulously profitable.

Finally
Put in your 10000 hrs of trading apprenticeship like we all have.

 

[Nortorious]

Realizing that entry is a minor part of the picture.
Actually buying it.
Putting in place a contingency if your analysis is proven incorrect.(Risk mitigation)
You'll get it wrong more often than right.
You can be right 25% of the time and still be fabulously profitable.

Finally
Put in your 10000 hrs of trading apprenticeship like we all have.

Thanks Tech/A.

I have a stop loss rule of 15% to minimise losses.

From my readings, the profitable approach seems to be minimise losses and let profits run... - which makes sense! Hopefully plenty of running ahead!

As part of my 'apprenticeship', I'm reading approx. 3 books per fortnight, participating in forums, attending "free" seminars, speaking to others in the sharemarket and finally investing (bought my first long term share yesterday).

What I have learnt about the stockmarket and different investment strategies has been phenomenal given how long I have been researching.

I'm looking forward to the continued reading and research, and also investing!

 

[tech/a]

Thanks Tech/A.

I have a stop loss rule of 15% to minimise losses.

From my readings, the profitable approach seems to be minimise losses and let profits run... - which makes sense! Hopefully plenty of running ahead!

As part of my 'apprenticeship', I'm reading approx. 3 books per fortnight, participating in forums, attending "free" seminars, speaking to others in the sharemarket and finally investing (bought my first long term share yesterday).

What I have learnt about the stockmarket and different investment strategies has been phenomenal given how long I have been researching.

I'm looking forward to the continued reading and research, and also investing!

15% of what?
Your Purchase price of the stock
Or 15% of capital invested OR 15% of your Total equity.

How do/did you come to 15% of whatever as an acceptable figure?

 

[Boggo]

In this example (not a buy recommendation) the software has calculated how many shares I can buy based on just 2% of a $20000 account size.

Get your head around this concept for every entry, ie. know where your exit is and how much it will cost you when it goes there (and they will go there, more often than you like).

The only time that I would think about giving back 15% might be on a volatile stock when I am up over 100%.

(click to expand)

 

[skc]

I think this chap is trying to learn long term investing...

 

[tech/a]

I think this chap is trying to learn long term investing...

Oh

In that case.

Realizing that entry is a minor part of the picture.
Actually buying it.
Putting in place a contingency if your analysis is proven incorrect.(Risk mitigation)

 

[skc]

Oh

In that case.

Realizing that entry is a minor part of the picture.
Actually buying it.
Putting in place a contingency if your analysis is proven incorrect.(Risk mitigation)

Sorry I was referring to Boggo's 2% risk per trade rule which is difficult if not impossible to apply in long term investment.

 

[tech/a]

Sorry I was referring to Boggo's 2% risk per trade rule which is difficult if not impossible to apply in long term investment.

Why?

Boggos refering to 2% of Total capital available.
so 20K $400
100K $2000 etc.

He is also on about Fixed Fractional position sizing our friend can google it.

 

[skc]

Why?

Boggos refering to 2% of Total capital available.
so 20K $400
100K $2000 etc.

He is also on about Fixed Fractional position sizing our friend can google it.

We are talking about long term fundamental investing? You can only do fixed fractional position sizing if you adopt a price based stop. IMO if I bought a share for a specific fundamental reason, I would not have a price based stop. I would instead have time or event based stops.

Then again the OP did mention FA and TA for entry so by all means go read up the 2% rule and see how that can be applied.

 

[tech/a]

We are talking about long term fundamental investing? You can only do fixed fractional position sizing if you adopt a price based stop. IMO if I bought a share for a specific fundamental reason, I would not have a price based stop. I would instead have time or event based stops.

Then again the OP did mention FA and TA for entry so by all means go read up the 2% rule and see how that can be applied.

OK

Im interested then in how much room or risk you would allow with a time based stop.
Im wondering what would come first the time or the stop?
If its just open ended then you could lose massive amounts in a time frame.

Fundamental reason also how do you judge?
Ive seen bad news cause a stock to fly and great reports see a stock get smashed.

 

[Nortorious]

15% of what?
Your Purchase price of the stock
Or 15% of capital invested OR 15% of your Total equity.

How do/did you come to 15% of whatever as an acceptable figure?

On review of my investment strategy, I have settled with a 10% stop loss (10% of the purchase price). This seems to be the figure that most research and reference material recommend. This figure is certainly not based on any of my own experience, so let me know if it is reasonable or ridiculous!

Given I am investing for the long term (I'm 24 years old), how important are stop losses? I only see them useful for opportunity cost reasons and to minimise damage on the portfolio should a stock perform below expectations.

I am trying to learn as much as possible to improve my chances of success in the sharemarket (long term) and appreciate all the contributions.

Even the 2% rule, it may not be applicable for my strategy but is another thing for me to read up about (possibly for future reference).

Thanks!

 

[Boggo]

Given I am investing for the long term (I'm 24 years old), how important are stop losses? I only see them useful for opportunity cost reasons and to minimise damage on the portfolio should a stock perform below expectations.

How many more reasons do you need ?

Long term investing is great if you ride the uptrend, when the the market turns down you have to have an exit strategy to protect current portfolio value.

A simple concept is that if a stock starts to turn down then you need to get out of it, why give your money away (if you just want to give it away then I will gladly accept it ).

Assume that you hold something that drops in value by 50%, to regain your loss that item now has to increase by 100%.
Why would you allow your finances to get in that situation, have a look at a monthly chart of TLS chart for a good example of a great run up all given away by most investors "because we are in for the long term".

Other considerations for long term are the impact of the CPI and dividends.

Lets have a look at an example over just a three year period using WOW (Woolworths).
In Dec 2007 WOW was at a high of $35.05, apply the impact of say a 3% average CPI over a period from Dec 2007 to Dec 2010.
To break even WOW would have to be at $38.30 in Dec 2010 (ignore where it is now for the exercise) to retain its actual value.
Ok, what about the those life saving dividends, since Dec 2007 WOW has paid $3.68 in dividends but you needed $3.25 of that the offset inflation and effectively only made a profit of $0.43 in three years thanks to the dividends and that is if the stock had held it Dec 2007 price.

What I am saying is that unless a stock is going up in value then you are better off with your money under the mattress and add to it each week.
Holding as it goes down based on fundamental hope is a crock in my opinion especially if it is a penny trading stock.

The best thing I ever did was to stop investing and start managing.

Just my

 

[skc]

OK

Im interested then in how much room or risk you would allow with a time based stop.
Im wondering what would come first the time or the stop?
If its just open ended then you could lose massive amounts in a time frame.

Fundamental reason also how do you judge?
Ive seen bad news cause a stock to fly and great reports see a stock get smashed.

You would start with an overarching framework of position sizing... more stable stocks can afford larger sizes, more volatile stocks smaller size, near-death stocks probably amounts that are inconsequential. This is the first part of risk management.

The second part is the ability to brutally, honestly and correctly assess fundamental facts surrounding the company, and sell when those facts demonstrate (to whatever confidence level the investor deemed appropriate) that the valuation of the company has changed for the worse. This is as good a stop as any price-based stop.

With time based stop I would adopt that when I have a 'time based' event entry... there is a takeover brewing and I will exit in 3 months if nothing comes. You also size your position accordingly. I think if no takeover comes the stock will fall 10%, so I am comfortable allocating $X to the position. This would be similar to the 2% rule (which is start with controlling how much you lose), but it's application is not as precise.

As to judging fundamental reasons - that's a case by case basis so a bit difficult to say here. Market reaction to news will always depend on its starting point and expectations. Is a resource of 200m Tonnes of copper good or bad news? Good if the expectation was 0, bad if the expectation was 500m. Mis-interpreting expectations and news is bad for fundamental investing without a doubt. The same as mis-interpreting price action and volume is bad for technical analysis.

Holding as it goes down based on fundamental hope is a crock in my opinion especially if it is a penny trading stock.

Absolutely agree. The 'correct' action was to sell the position base on fundamental facts (e.g. copper wires getting obsolete when people no longer use dial up modems). Your example highlights the major pitfall of fundamental investing - when you get it wrong you can't make it work... but that's the same with any strategy.

 

[tech/a]

You would start with an overarching framework of position sizing... more stable stocks can afford larger sizes, more volatile stocks smaller size, near-death stocks probably amounts that are inconsequential. This is the first part of risk management.

Interesting--I like larger parcels on the "riskier" type stocks. They tend to be the ones who's growth becomes exponential. Risk can be controlled by waiting for low risk (Very tight) initial stops on micro patterns.2% on a 100K account is $2k but I will often risk $350 on a .003 spred on a 6c stock 120000 shares on low risk 4:1 on 1c move---very common.

The second part is the ability to brutally, honestly and correctly assess fundamental facts surrounding the company, and sell when those facts demonstrate (to whatever confidence level the investor deemed appropriate) that the valuation of the company has changed for the worse. This is as good a stop as any price-based stop.

Would be like me ( For me) practicing Heart surgery---too many fatalities!

With time based stop I would adopt that when I have a 'time based' event entry... there is a takeover brewing and I will exit in 3 months if nothing comes. You also size your position accordingly. I think if no takeover comes the stock will fall 10%, so I am comfortable allocating $X to the position. This would be similar to the 2% rule (which is start with controlling how much you lose), but it's application is not as precise.

Yes understand that.

As to judging fundamental reasons - that's a case by case basis so a bit difficult to say here. Market reaction to news will always depend on its starting point and expectations. Is a resource of 200m Tonnes of copper good or bad news? Good if the expectation was 0, bad if the expectation was 500m. Mis-interpreting expectations and news is bad for fundamental investing without a doubt. The same as mis-interpreting price action and volume is bad for technical analysis.

I think---at least I my case reaction time on event based price action is quicker or already in place--but can see clearly your point.

 

[The_Snowman]

Hi All,

Relatively new to ASF and the sharemarket. Currently have capital of $10k to start me off in long term investing. I'm looking at selecting stocks using a combination of fundamental and technical analysis with the goal of capital growth and passive income (through dividends).

I'm trying to time my entry to ensure that short term the gains are good, and long term they are even better.

What indicators do people use for entering the market for long term investments (and short term). Are moving averages valuable to analyse or is this more for short term trading strategies?

Look forward to hearing from some of the wiser investors and learning from you!

Thanks
Nortorious

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