(Click to enlarge).
You can read a bit more about it here.http://biz.yahoo.com/ibd/070111/newamer.html?.v=1
Easy Go. Here's a picture of ANDE that caught investor's fancy when ethanol was all the rage. I made a very quick trade on ANDE. It went up $10 in 2 days and I quickly exited. I could have rode it for a few more of those $10 increases, but it was a trade. Period.
I'm really fascinated with technical analysis. While I understand that it is not a be all end all, I do believe that it helps reduce risk in making investment decisions. So my personal challenge is to monitor MIDD and look for changes in the trend--to try to hone my skills. I'm going to use this stock as a thought experiment. My goal is this: by the end of this year, I want to have group of indicators that I am familiar with and can use facilely so that I can have MENTAL MUSCLE MEMORY on any chart that I view in order to...
- view and skip
- view and pause--and if promising put on a watch list to
- ultimately to WATCH and ACT.
5 comments:
"As an approach to research, technical analysis has suffered because it is a "discipline" practiced without discipline. In order for technical analysis to deliver useful knowledge that can be applied to trading, it must evolve into a rigorous observational science".
From the inside flap of "Evidence-Based Technical Analysis: Applying the Scientific Method and Statistical Inference to Trading Signals" by David R Aronson.
From here: http://www.amazon.com/Evidence-Based-Technical-Analysis-Scientific-Statistical/dp/0470008741
Technical analysis marches along with a crowd of other technical analysts all trying to second guess both the market, and each other.
I have a little approach that I hope to refine this year using no more than 3% of my total portfolio. I've used this approach in the past with success, but I wasn't methodical. This year I plan to follow this approach methodically.
Here's the approach:
1. Develop a small group of 8 to 12 stocks that have only one quality: they have been "reliably" volatile over the past 2 to 5 years either within a range or (much better) in a range with an upward bias. (I use the quotes on the word "reliably" because things change, always change.) I look for minimum 15% up and down movements within (ideally) 3 to 4 months.
2. Buy one of these companies when its price is (again) low.
3. Ride the price up; use a tight trailing stop once it has moved up 7%.
4. When I'm stopped out, revisit the list, see which company is down and repeat.
5. The just-sold company goes back on the watch list. It might be way down next time I'm looking for a replacement.
This is a simple, plain vanilla aproach that doesn't demand constant watching or attention.
Naturally, it makes the most sense to do this within an IRA, which is where I have done it so far.
So far I've done well applying this approach (in a very small way)with SIRI, FNSR and LAZ.
Any comments? Criticisms? Suggestions for improving either the approach or the possible outcome?
I had a presentation (sent privately) that had a very similar approach but in a grander hedge fund sort of way.
I believe their tweak was to try and find stocks that had a low correlation (possibly by using large cap and micro cap?: I don't remember exactly).
To some extent what you are doing is similar to dollar cost averaging where your dollar is stretched to buy more shares within a given portfolio.
Your most likely problems will be high trading cost.
The second problem is market risk where the entire portfolio goes down. Which I think is why the fund had a macro - micro dichotomy to it.
Hope that makes sense but it was a while ago that I looked at the material.
Russell, thanks for the observations.
I think this is one reason I'll keep to using only small positions!
That said, if I make, say, $1,000 - $3,000 on a position and my transaction cost is (RT)$16 to $21 I'm still coming out ahead.
Re the micro/macro thought: I've done better with "better" companies that seem to be volatile, for whatever reason. One possible reason/advantage: their liquidity.
Thank you so much for your helpful comment.
Russell...as I'm using technical analysis to help me when I'm making stock buying decisions based on fundamentals, I'm not sure that my approach qualifies as a "system" to be subjected to scientific method! I'm pretty much a nerd, but I don't think that I could ever wade through Aronson's book!
Gemma star...regarding tight stops. IF you hare buying inherently volatile stocks, I would imagine too tight a stop might shake you out of something that you want to stay in.
Interestingly, Gary K made a reference to stops that I had written about here...meaning, those market makers can see your stops and can shake you out. So maybe he is paranoid too, but given that he does this for a living, I was pleased to hear some confirmation of my observation.
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