Common wisdom in the investing community is that it is impossible to Time the Market - successfully -over the long term- There may be some truth in that for most of us- Day traders attempt to exploit more minor moves for larger cumulative gains-over the course of multiple trades- Their Risk per trade is minute compared to a swing trader-However, the exposure due to the large # of trades taken increases the Risk over time- Chart of BRKB- a friend's position- - not my trade-was to illustrate applying a single ema to a price chart- and understanding that the trend was in effect until that price broke below the uptrending ema. He was ready to close a stop-loss directly under the price bar on a $140 entry- My view is give the winning trade room to run higher- Yes, protect your entry now- but don't react until you see real weakness and not "normal" volatility. Typically , trending price is away from the ema- but pullbacks to the ema does not confirm that the trend has broken- just that momentum has slowed- My suggestion here- promoting a longer term hold- is to consider not reacting unless price has a bar that closes below the ema (Not just a penetration) Perhaps a stop loss raised to the low of that bar would both allow price to go higher the next day- or would get taken out on a second bar that was weaker- Position traders could take the view on a weekly chart- just as well - as long as the trend had proceeded far enough from the entry. On active positions- minor adjustments to stops- Tightened Cure a bit higher- i expected a push higher.
If anyone is interested in commission free trading- TDAmeritrade has 100+ ETF's listed that one can trade- in a retirement account- for no commissions- I think there is a 30 day holding period required - Vanguard.com- One can open a brokerage account for $3,000.00 and also trade any of their ETF's commission free. Also no maintenance fee if you get your statements electronically- And their ETF's are generally passive- not actively managed- follow an index- and have a very low expense ratio compared to managed funds- or most mutual funds. The market trend in the past few years is finding many investors recognize the higher fees charged with managed accounts does not necessarily bring them more gains. John Bogle- founder of Vanguard drives home the point that the big brokerage houses and money managers reap their rewards in fees whether the investor wins or loses in their investments. For those interested- check out John Bogle on you tube- or Vanguard has a series of videos as well....... Over the last few years, I've read a few books on portfolio management-and one of the areas that professional managers determine is holding a diversified portfolio- rebalancing that portfolio -quarterly for sure- some monthly- as a way to improve net returns as well as reducing Risk. One of the books- "The Ivy Portfolio" -Faber tracked the performance of a large Institution and how the money managers managed to achieve beyond average returns -typically- They took financial; studies- Fama- and as i recall modeled their portfolios across a wide spectrum of financial investments- well beyond the reach of the average investor- They did have a number of suggestions that would relate to the average Investor- David Swenson also strongly recommends the non-professional seek out low cost alternatives to broker/dealers-and commission based advisers- and for those interested in managing their own accounts- one of an ICA (fee-1%) advisers- wrote a succinct small book- "The Smartest Portfolio You'll Ever Own" by Daniel R Solin. In very simple terms- Solin explains why the Investor should choose a self directed account with low cost ETF's, as an improvement over paying higher fees and expenses- He also outlines several different portfolios for different Risk appetites- If an individual simply does not want to be bothered with the tracking, rebalancing, and management of their investment portfolio- but wants a low cost alternative- Vanguard offers Target Date Portfolios- that are automatically rebalanced every quarter- and- as one's time for retirement approaches- the investments get more conservative- The typical investor with 20 years until retirement could invest in a target date year 2035- which gives a mixture of growth, equity and bonds- If an investor wanted to increase exposure- and have a greater weighting to foreign markets - They could allocate a portion of the assets to a further out target date fund- 2050 -for example- which likely increases the Risk - and opportunity- to emerging & global markets- I think one can shift allocations within the funds at no expense- but that would need to be verified. Target date funds are diverse- low cost - 'professionally managed and rebalanced - Might be a perfect scenario for someone who wants diversification & reduced Risk in a single instrument. I recommend to friends -and family- those not wanting to be "bothered" with learning about investing- needs to consider steady retirement - Roth or IRA by contributing into target date funds- Through Vanguard- their lower fees will add up to a better return over an investors time span- Once one has a method for long term investing solidly in place- perhaps one can then take on some additional Risk with a small % of assets to experiment with market timing approaches-. From personal experience- over the past decade- I would move retirement assets around with Fear being my pilot- That helped in 2007- but I didn't have a plan in place come 2009 to take advantage of the bounce higher- So, this thread is a Lab for myself - to see if my application of TA can be effective over a longer period of time to reduce Risk and gain opportunity by taking advantage of normal market swings. A comment on managing an Investment account- One should not focus on a daily chart with all the gyrations that seem magnified- Investments should be viewed through the lens of a wider perspective is my opinion- That said- IF one exits an investment on Weakness- and a possible reentry lower presents itself- a weekly chart lags- but gives fewer whipsaws-. One of the things that is helpful to understand is where is the investment in regard to TREND- UP, Down,Or Sideways- Charts and a couple of EMA's put that in perspective- I think portfolio re balancing is to maintain a certain % of allocation to fit a certain Risk model- So, If one asset outperforms the others- It now is at a higher % than it should be- So some of the profit is trimmed and reallocated to purchase the assets that are underperforming- This is akin to being a value investor- buying the Warren Buffet way- getting assets at a value bargain price-. Timing the market is a balancing act- Most professionals fail to outperform the market over time- Yes there are a few exceptions they say- but then underperformance occurs- largely because the outperforming manager cannot be tactical- has too much in $$$$ and has grown too large to be able to be nimble- A smaller investor can try to be nimble- because his trade or investment does not move the scales. The smaller investor can become nimble and tactical- If they can develop a method they can repeat - and a disciplined mindset as well.
Why choose TA- Technical Analysis- chart interpretation- to make "Investing" decisions, or changes? Depending on the chart one views- One sees the consensus of the market at that point in time in that time frame. One can have a fundamental belief that may be accurate, -over the longer term, but the market may not care about that belief at the time and chooses to sell-off regardless of one's well analyzed belief- Beauty- and value- are in the "Eye of the Beholder" One can combine fundamental analysis along with TA to make their entry just as the market is coming to agree with one's interpretation- You bought near the low- congratulations- OR, one can think that all the fundamental analysis doesn't matter if the market fails to recognize and reward it- If one has a "belief" that something is of value- one is biased- and will interpret moves in the direction that validates one's beliefs as being discovered- Or , if one has a negative bias (my issue) One tends to think the hammer is about to fall at every minor decline or News that affects the markets. If one steps out and views a chart- one gets an idea of where price is heading- I have eventually realized that i get far better results when I take trades that are going "With" the trend- than counter trend trades- I seldom take counter trend trades and when I do- I reduce my position size, follow them with tight stops, and expect them to fail very quickly- By applying a 2 hour chart- when the market declined, I caught a faster entry in SDS- market short- but followed the move up with a stop raised below the low daily- and stopped out after 4-5 days This is not about taking the tactical counter-trend trade- I also had been taken out of my active positions as this occurred- and that locked in some gains- prevented some losses- that a daily chart would not have signaled. The downside of a faster chart- is that it gives more numerous signals to Buy- or Sell- And one can get whipsawed around if one uses indicators as timing signals- Indicators lag- they can be applied as a confirmation to what the chart is telling-- Essentially- As an EOD trader- If i am viewing price on a 2 hr chart- and I want to try to understand what price is telling me occurred during the day- and it drops below the fast ema- that's a possible warning that momentum has slowed- but is not a reason to sell- The daily chart will not show a break of it's ema yet-Perhaps i then simply need to assess where price is on all time frames and what is occurring- If price drops back into a sideways range- perhaps my trade is intact- is simply basing normally and the exchange between buyers and sellers is being worked out - I want to be informed, but i don't want to react to what looks more volatile than it would on the time frame i should be referencing- If I took the same 2 hr chart and dropped down to a 5 minute chart- there would have been 10 or more periods where price would have broken the trend and declined and screamed Sell- and a few minutes later- "BUY" I have slowly adapted my trading- thanks in part to some of the day traders on this site-and their threads i read in the past ..........- to try to apply a faster view to my EOD trading- I respect their talents and insights-Thanks to those that share- So, In a trending market- one should give allowance for price to pause, perhaps minor retrace- and get the greater meat in the trend- One has to determine how much to "give back" in order to not nip a small gain quickly off the table- Where most trading fails is when the trending mkt pauses- or gives a small retracement and consolidates- A trader -trying to jump on trends gets chopped up with signals that fail quickly in a sideways range- TA has to be taken in context of a wider picture to be effective for the longer term trader is my opinion.
It is helpful to get a sense of trend direction on higher time frames- and I now believe one can target better entries if they are aware of where the larger time frame direction is headed- and also- could one adopt a present method on a faster time frame, to a slower time frame with success? I'm going to try to "Drill Down" - starting wide and going progressively tighter (faster time frame) - and will 'add' a few items for consideration along the way. I also need to learn to post charts that fit this site's method- so I have read some info at support and will experiment with the images- I'm likely overlooking where you click to make a comment that is not a 'reply'? Cannot title a separate comment within the thread? Minor matter- Using CURE is just as an example-Of how i have come to try my skills at position trading with a faster chart- In the chart I am going to try & post - It is a 3.5 year Monthly chart- following an initial decline of a few months, price made a bullish reversal bar and started to trend higher. One would have waited perhaps for the bar to complete, taken it as a reversal and purchased the next month's bar at $15 or so and held to present day $115.00- Nice 7x gain. Caught a good trend- Let's assume we had a $1,000.00 starting investment -Nov 2011- and bought following the completion of the reversal bar in October- We purchase 66. shares at $15.00 . with a $7.00 commission. We hold through thick and thin- Today, our 66 shares is worth $66 x $118.00 = $7,778.00- or a 700% + gain. WOW- This is a very nice gain in 3 years- and I'm planning the future purchase of the yacht and beach house- and Harvard- perhaps Yale - for the grandkids.. Actually, a lot of stocks resemble this trend since 2009- And it starts to "feel" that if we can just put up with the minor pauses, we will have great success over the long term. That is both greed and complacency at work- In this look Back- The chart is about as simple as it gets- until one thinks one may elect to do something other than Buy and Hold - What does one react to? Where would one set a stop consistently- where would one reenter if stopped out? Could one take advantage on this time frame of the periods non trending to increase the position? Could that be repeated? Trying to enter a chart at this point - I think this works- SD
THE NEXT CHART - LOOKS AT THE SAME MONTHLY TIME FRAME It tries to establish a set of simple rules regarding an entry and an exit- Rule 1 is the entry confirmation bar has to close above the prior bar. the assumption is the next bar would be entered at the closing price of the confirmation bar. A stop-loss would be set below each prior bar's low once it closes- expecting price to trend higher- In the followiup chart - approx 8 entries were made- and 7 trades had stops hit on pullbacks below the low of the prior bar. This is very unrefined- and simplistic- but it is "testing" applying a set of entry & exit criteria to a basic chart-- and represents a rudimentary but somewhat consistent approach - The purpose of employing stops is to prevent a substantial decline from destroying one's account and wiping out all the gains that one had accumulated. In the prior posting- The Buy and Hold entered after the confirmation bar indicated an uptrend was possible- and received a substantial gain for neglecting to consider that the end result would not reward him. This was indeed chance in his favor- for this relatively short period- in this instrument- Other selections would not have fared as smoothly - and -indeed- this may not be "normal" for the average market periods- The net gain of this approach was profitable- 83% return- and limited downside Risk- But the Buy and Hold returned $15 - $118.00 - a 700%+ return on the initial investment. It almost makes one wonder if trying to time a trending market is worth the effort. That is when one gets complacent and the market delivers a learning experience to those who choose to think the market is benign.. this second chart illustrates the entry criteria, and a basic exit stop designed to lock in profits as the trend continues higher- exiting on weakness of momentum & price volatility- As Volatility increases- The same bar that hits the stop turns out to be the confirmation bar with a higher close to signal that one needs to reenter- One could look deeper into an approach on this time frame- but perhaps one can look at a faster time frame to improve entry & exit- . A look at the weekly chart will give a closer insight to what is volatility in relation to trend-
Following your thread with great interest. Incidentally, if you want to post without replying, just type the post in the box at the bottom of the page.
Thank You for your interest- Please feel free to comment - I'm open to constructive criticisms- and suggestions to study a method I overlook - interested in learning outside of my narrow focus. And thanks for pointing out what is now the obvious box I should have been posting in ! LOL-SD
Any reader- note No considerations for commissions, slippage ete- Just comparing what making a single addition or modification can add or detract from a starting system. Chart 1 showed a great return of buy and hold with absolutely no stops- and a great present success to the present. Up some 7x Chart 2 introduces a rigid stop-loss following price- and a rule for an entry after a confirming bar had a net 83% gain - feeble to chart 1's impressive return. Chart 2 is a cautious approach. In this next chart, I have 2 modifications- First, I start with an entry on the 1st day of trading with $1,000 at the open, and set a stop directly under the low of that bar (granted- there is no prior history) . This trade starts off by being stopped out for a loss of account value- and then there is a multi bar decline- a period of "downtrend" - lower highs & lower lows. Following a multi bar decline, with progressively lower closes, the entry requires a reversal bar to close higher than the declining bar's open or even perhaps it's high. In the chart- the Oct 11 bullish engulfing candle exceeds both the open and the high of the prior bar- The entry only then occurs after this bullish bar has completed- (explore this further down the road) Once this bar occurs- an entry to buy the open with a stop below of the confirming bar occurs-. (worked in this 1 chart- will be expanded later ) The stop-loss criteria remains tight under the low of the prior closed bar, as was done in the prior chart 2. The change is the entry criteria now uses a buy stop to enter just above the high of the bar where the stop was executed, and not waiting for a confirmation bar- This single change had a significant impact on the results- compared to the method illustrated in Chart 2. chart 3 has a 3x return of the starting account due to the 1 adjustment in the approach. One could easily argue the point that this worked so significantly because the trend stayed up and the consolidations were relatively smooth and sideways. Trend direction is indeed a significant factor- IMO in all trades- As one views this chart in hindsight- it occurs that some of the stops were simply caught on price intrabar volatility- and, in the majority of the stops that were executed by the active bar, the active bar may have penetrated the stop level activating it, but did not close below the stop level in most instances. The next chart may explore that as the next step to consider- Normal price volatility goes both up and down. If the prior bar is the only consideration for a stop level- one gets taken out on moderate volatility even though the trend remains intact. There are additional variables- that can be explored to see what works and what one can be comfortable with. Use an ATR multiple for stops? -use the entry bar for a stop until a closing bar indicates one needs to be concerned? Use a smoothing mechanism- to evaluate price action (a couple of moving averages for perspective?) use a technical indicator- psar? Use price action alone or in conjunction with other ways to improve results? Once an approach looks promising- how does one define and backtest? Some areas i will explore going forward- hope to learn a bit and share it here, as time allows. This process of analyzing a chart in greater depth is a good exercise for me personally regarding my own trading. Chart -cure-Monthly3