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Profiting from market trends?

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Re: Trends & Information


Hi Coyotte,

Do you treat any penetration of a bollinger band as a sign of change be it upper or lower?
 
Re: Trends & Information

Hi Snake

In Trend Trading I treat Bollinger Bands as a early warning when a stock appears to be starting to top -- tighten STOPS -- watch for a diverging ADX plus line .

I treat a diverging ADX combined with long upper Candle tails in a Trend Trade as a EXIT SIGNAL for the time being with a possible entry latter .



In Break Out Trading I watch for a breach of the lower band - - followed by a move back within the band --- any CLOSE now above the Count Back line is a Entry Signal .


BBs set at 20 x .2 simple


Cheers
 
I believe the company fundamentals is what people are buying into on a trend and to a lesser extent the "future prospects" of a company. The trends are formed and collapsed on these premises to a greater or lesser degree. Chart wise it is evident in price action and reactive at various places too.

Day traders and short term holders buying in and selling higher contributes to the trend just like the buy low sell lower approach hastens the decline.
 
Completely sensible considerations, VS. You're quite right. When I first began with the strategy I had the stops too tight and got whipsawed about. Many years of practice now, and probably a better comprehension of the wider macro situation (viz especially leading up to the GFC) have brought increased profitability.
 
On the general principle of the strategy, I'm in the market to make money, not to sit around waiting for that market to recognise the brilliant fundamentals of some company on which I've placed my own calculation of value.
Wysiwyg's post goes to this succinctly.

I'd rather be out or invested elsewhere than watch my capital investment diminish every day.
We'll all do what we're comfortable doing. And eventually what a few decades of experience teaches us is the most profitable for us.
 
Julia said:
On the general principle of the strategy, I'm in the market to make money, not to sit around waiting for that market to recognise the brilliant fundamentals of some company on which I've placed my own calculation of value.
.
Click to expand...

We are all in the market to make money, However If I find a business that is severely undervalued because of the value it's generating and accumulating and it will probably see a gain of a couple of 100%, at some stage over the next couple of years, why would I want to wait for a trend before I buy.

Holding a stock and waiting 2 years to earn 200% is nothing, and if the company is paying say 6% - 9% franked dividends anyway, I gain nothing by having my funds earning 3% taxable interest in a bank while I wait for the trend to start.

Also to me it's about the over all rate of return on my portfolio, if I hold a portfolio of say 10 stocks I have selected on value, the will probably all go up at different rates at different times, so the 2 year wait on one stock is offset by only having to wait 6months on another, and the large returns across my entire portfolio offsets the share that went no where, but just earned some dividends.

Looking over the chart of all the companies I have made large gains on in recent years, a trend following approach would have led me to buy at higher price than I did, then sell on a dip only to buy back in at a similar or higher price and then sell on another dip before buying back in at a similar or higher price.

I prefer to watch the performance of companies rather than price action.

I am not saying just blindly hold any investment, I would watch the quarterly company earnings announcements and basically keep track of the company making sure it's still performing, but the short term fluctuations of it's market price wouldn't bother me.

But each to their own.
 
burglar said:
I tried value investing with NAB
Made 12% Capital Gain after brokerage within six weeks.

Bored silly, I gave it away, went back to my penny-dreads!

Different Strokes, ... I don't mean to denigrate your method.
Click to expand...

Value investing doesn't mean you have to avoid penny stocks.
 
If that were the case, then your time frame would need adjusting. It's the sort of concern Value Snatcher referred to in that using a too short period chart will see you moving in and out too soon. Comparisons with longer period charts give a different perspective. To jump out because of short term volatility makes no sense.

I prefer to watch the performance of companies rather than price action.
Click to expand...
As do quite a few people.
There is plenty of room in the market for a variety of approaches, various of which suit different people for different reasons.

But each to their own.
Click to expand...
Exactly.
 
The Coca-Cola Company prices over 4 decades.

If you follow trends, when would be the right time to jump back in once you've flipped it and take your profit?

You would probably missed those years in the 70s when it's the best time to buy it; then buy at a higher price when strong trend is up, then sell out and share your profits with the taxman, then watch as it goes up and up...

And this is when you actually make money trading great businesses. Imagine those .COM or whatever else that's all sizzle and no meat.

Anyway, not saying you can't make money trading the trend... but the time it takes to follow the market - daily - and the tax and opportunities (and being the last guy out or in)... I don't think it's worth it.


 
luutzu said:
... then watch as it goes up and up ...
Click to expand...

Why would you watch and watch for years while it goes up and up.
Jump on while it has momentum!
Jump off when it shows weakness!

It's not Theoretical Mathematics !!!!!

:
 
burglar said:
Why would you watch and watch for years while it goes up and up.
Jump on while it has momentum!
Jump off when it shows weakness!

It's not Theoretical Mathematics !!!!!

:
Click to expand...

: It's not even rocket science!
I think this whole debate about trends and size of profits is conducted on so many different levels that people at different age groups - hence different time frames - are arguing well past each other. Yet it's really as simple as 1-2-3:
1. Pick your time frame.
2. Pick your strategy.
3. Follow the trend in your time frame and enter/exit as strategy directs.

Personal Example:
My time frame is weeks/ months because I'm at a stage in life where I consider it unreasonable to wait ten years for the profits to pay my bills. It would've been nice, to follow luutzu's example of Coca-Cola, to have bought in 1970 at the beginning of the trend. At that time, I was building a career with the likes of IBM, developing technologies that now, 40 years later, make it possible for us to have this discussion. From that angle, it's a red herring to talk about what might have been if...

My strategy right now is focused on average daily return on capital at risk.
Based on that, I look for stocks that promise a trend reversal, then I start risking small amounts traded over small swings, until a HL-HH sequence confirms a positive trend on my original daily-weekly c.o.t.
Check out a few of "Pxel's picks" and you'll probably get my drift.

The "beauty" about this approach is: It works on any time frame. I can scan the Market with the same algorithm over a 34 week, even 34 month, horizon as easily as I can apply 34 days. At times like the current, I may find fewer "Picks" at any run, and the rewards may take longer to materialise. But the results will be comparable.
 
pixel said:
: It's not even rocket science!
I think this whole debate about trends and size of profits is conducted on so many different levels that people at different age groups - hence different time frames
Click to expand...
and different levels of experience

- are arguing well past each other. Yet it's really as simple as 1-2-3:
1. Pick your time frame.
2. Pick your strategy.
3. Follow the trend in your time frame and enter/exit as strategy directs.
Click to expand...
Sure, and it can be simplified further by

Let your profits run
Cut your losses short
Protect your capital

There would also have likely been a need during those younger years to pay off a mortgage, invest in additional education, raise children etc.
Then there would have been several periods during that time frame when your funds would have done better in a different asset class, eg property.
Or, as in the recent GFC, to preserve profits by moving to cash until it was over, instead of watching your invested capital halve.

Just as no one method of investing has a monopoly on success, neither does devotion to a single asset class over a long period.

Another relevant point is that many who espouse their particular holy grail of investing have the luxury of being full time employed. It's a different story when one is in retirement, generating a living from capital with no government or other assistance.
As long as I can easily live on dividends, franking and interest, I'm happy to donate the capital gains to the RSPCA. Money for its own sake is less meaningful imo than what it allows you to do after providing life's essentials.

Probably not a lot of emotion involved in that methodical process.
 
luutzu said:
The Coca-Cola Company prices over 4 decades.

If you follow trends, when would be the right time to jump back in once you've flipped it and take your profit?

Whens the right time for a value investor?

View attachment 60515
Click to expand...

What a shocker of a chart what a shocker of a theory and what a shocker of a comment.(Bold)

Firstly lets put the chart in linear and have a REAL look at it.



Value investing is simply an INTERPRETATION by who ever is determining PERCEIVED value of a stock at any given time.
Right now with WOW on another thread that interpretation is argued by many on the thread---whos right?
Us techies however wouldn't be sitting around waiting to find out!



You would probably missed those years in the 70s when it's the best time to buy it; then buy at a higher price when strong trend is up, then sell out and share your profits with the taxman, then watch as it goes up and up...
Click to expand...

This is a crazy statement.
You have to pay taxes regardless of when you liquidate.
Your theory without an exit strategy is simply buy and hold ---oh on a Value stock of course.
Its a great theory and has been proven to be less than the holy grail.Its got more holes than Swiss cheese.

And this is when you actually make money trading great businesses. Imagine those .COM or whatever else that's all sizzle and no meat.
Click to expand...

I remember the .com era.
You could make 10s of 1000s on companies in a few months who had NO VALUE.
Value investors missed ALL those opportunities.

This (UXC) Was Davenet.
Now thats a trend and thats REAL OPPORTUNITY



Call it emotion call it stupidity I don't care what you label it
I call it bread and butter.I see it on charts every where in every time frame.



This is the DAX and at a point of pending "Opportunity"
Short right now but ---Ill keep watching those charts!


Anyway, not saying you can't make money trading the trend... but the time it takes to follow the market - daily - and the tax and opportunities (and being the last guy out or in)... I don't think it's worth it.
Click to expand...

Yeh really??

Waste 25 yrs waiting and hoping(See Coca Cola Chart---the linear one) or search out opportunities that FLY in a few months (See Davnet UXC chart)..
I only need one to change my life and I've and a few other here-- been fortunate enough to find more than a few!
You just have to get very good at it!
 


The Coca-Cola Company stock splits.

If a person bought in at $40 at listing and just go to sleep, that stock is now worth some 9000 times in less than 100 years.

So an investment of $10k is now worth some $90, 000, 000.



---------

I understand where you, Pixel, Burglar and other who trade stocks, either with the trend, TA or whatever technique it is you use. I know the reasoning and logic behind it, and if a person can do it successfully, what's the difference between value or trend... I agree with that.

Like Pixel said, there's the timeframe factor... True that not everyone has the spare capital to just pluck it down and wait months or years to maybe get a return (if you do get it then), why wait when you can get it now or in a few days time.

However, there's some important mistakes and misunderstanding in the above two assumptions.

First, while it's true that if you could buy stock X at price P then flock it off when it reaches P2 - you'd make money and who cares what the company does or what some genius reckon it's worth. That's true but you're assuming that you can get in at P and will set out at P2. But what if you're too late to the party? What if too soon after you bought, the prices are just -Ps. You would get out and buy at a lower price and wait until it goes to your previous P or higher?

What if, like that UXC example where you bought in after April 2000 at say $70, or then again after another peak at $30? You would have lost most of your money. Yea you would make buckets if you got in early and the trend goes your way and you got out early or just right... but how many of us could do that given that future prices cannot be known?

Or in the Coke example, what if you've made 100% or triple your money and decided to get out? Sounds reasonable... Then Coke just keep going up and up... you would jump in if that's the case right? But then you would have already paid taxes on realised profits, would have lost the profit gap since you left and now join.
This is assuming that your psychology and ego allow you to buy in at a higher price than when you just sold out recently. But like most people, chances are you might see something to expect Coke to go lower than when you sold and wait for it then.

When you trade the trend, what you are doing, at its core, is being involved in a ponzi scheme. That regardless of the value of the fake jewelleries or the tulips or the stamps, any stock (whether it earns a profit or burn hundreds of millions)... who cares as long as you could buy low and sell higher, you make money. Others (these others could very well be you) would see this "easy" profit and jump in hoping to buy high but sell higher... then when it unravels... on what basis do you use to predict when the end is nigh? The basis for value here is simply more supplies of buyers at the bottom of the pyramid... and while experienced traders or those with access to detailed data might have an idea and get out early... the market is very fluid and supplies of buyers can just dry up within a day or two, or dry up enough to do real damage to your holdings real quick.

When you trade the content inside a closed box but not knowing what is in that box, where do you anchor your value around? If the price of that box goes up 50 times, how do you know that that is too low or too high? If it drops 500% from its height, how do you know it won't go lower and go broke? A box that contain one solid piece of pink diamond is vastly different from one containing a lump of coal, or contains nothing.

Second, although value investment usually mean waiting a while to see your profit return, to wait for a turnaround... while we all associate value investing with long-term investing, thus giving an impression that invest on a value basis, one buy into a business and hope it grows over time. That a value investor buy now, not make any money now but wait until a year or two or five for the business to make money. This is wrong.

Value investing is buying a business at a price that already makes you money the moment you bought it.

It is buying a $1 note for 60 or 50 cents because most others figured it's only worth 50cents or much less.

Value investing is not buying 50 cents for 50 cents then hope that over time, if management is clever and if luck is on our side, that 50 cents is turned into $1 and then you sell out.

So if you know what you are doing, which you need to whether you trade the trend or value a business, if you know value investing and find the right opportunity, you have already made your money the very moment you buy into it - just the market does not agree with you... But it is the business and its profit that matter since opinions can change, hard cash is what it is.

So while it could take years for the market to recognise and re-evaluate your stock, you as the owner of the business have been making money ever since you bought in... and the market might reflect the earning streams as it has been or value at the new and higher earning streams over the time you bought in.
 
McLovin said:
Did you actually do this trade or is it just as theoretical as saying buying Coke in 1949?
Click to expand...

Bits of it.
I trade early sessions when I'm at the screen.
That's a daily chart
I trade 1/3/9 min.

Generally pick up a grand to 3 a session or B/E where I often let it run and it comes back on me.
 
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