Simplest trading stratedgy

Discussion in 'Strategy Development' started by pbw, Feb 7, 2006.

  1. pbw

    pbw

    Does anyone use the simplest trading stratedgy of visually looking at charts and some fundamentals -- to buy and sell stocks with some success.

    And purposely avoid the complications of all the technical indicators and optimised trading stratedgies.

    After all the complexed theories and stratedgies, it all boils down to buy low and sell high at a profit......

    Meaning do we sometimes over do it in creating these complex strategies --and shoot ourselves in the foot --
     
  2. TylerSJI

    TylerSJI


    I think it can easily be overdone.

    That being said, I personally use indicators to help measure quantitively if a chart is infact 'low'. I don't use indicators for supposed special support levels, I don't think much of volume, etc. I buy when both the industry index and underlying security look like they're coming out of a sharp move contrary to the trend. That is, using the area around the mean of the trend as an opinion of what is 'low' and what is 'high' for the next couple months.
     


  3. Only a few do that. Losers and the smart money i think i could say :)
     
  4. pbw

    pbw

    Tyler, could you say what indicators you specifically use -- you seem to be more of a position trader --
     
  5. TylerSJI

    TylerSJI

    I hold between a few weeks to a few months which is somewhere between swing trading and position trading I suppose.

    I'd rather not tell everything about my system, but I'll give the gist.

    Every now and again I'll review about a hundred different sector indexes (I like the DJ list at http://www.investorideas.com/Research/Stock&IndustrySectorIndexLists.asp) to see where the momentum is (I use a % based charts for this.. http://stockcharts.com/charts/performance/ is a good resource for this). Then I'll make a list of the top 5-10 sectors. Then I'll sit on my hands until one of them makes a fast move contrary to the prevailing trend (as shown by a long-term moving averages). The faster and bigger the better. I like a Full Stochastics indicator with high numbers for helping to gauge the general bottom (don't use the same indicator for selling as it will go off prematurely.) I've attached a picture with a Full Stochastics indicator pointing to long buying points on the 'hottest' sector available (coal). The faster the index/stock is trending, the higher your settings must be to get signals (I keep multiple up). I also like to keep an eye on the speed that the price is declining: if very fast then I want to see some slow in the momentum of that mid-term trend; if very slow then I may stay away as the long-term trend could be bending. That being said, timing is a lot harder then finding and getting in a good long-term trend.

    Once I get the go-ahead on the sector level, then I'll start looking at stocks inside that sector. Unless very speculative a company, stocks tend to trend quite noticeably with the sector index. I basically do the same thing there.

    Use stops. 1) they let you invest in the several very best opportunities rather than heavily diversify to hedge the total risk 2) they let you stay active, rather than becoming an investor to a fallen stock 3) they could save your emotional life. Beyond hiding them behind a big round number if nearby, I think that stops should be based almost purely on capital preservation rather than strategy: IMHO, it's just too hard to predict movement over a very short period of time.

    I also put a little bit of weight on fundamental analysis of the stock. I'm a big fan of PSRs and PEGs.
     
  6. distance, velocity, acceleration, mean reversion. Get a pendulum and stare it for hours, it'll all make sense
     
  7. too funny :)



    Get a pendulum and stare it for hours
     
  8. hans37

    hans37

    yes, I target fading what what appears to be the extremes (high and low) that are accompanied by excessive sentiment.(e-mini)

    I don't really know about, (shooting yourself in the foot) ,everybody has to trade what they believe. People who believe trading must be complicated gravitate towards exactly that approach, nothing wrong with that.

    They may also hold supplementary beliefs of
    1) only intellectually gifted people can win in trading
    2) complicated systems require a lot of work and thus may satisfy
    the "puritan work ethic" syndrome where the trader must put forth so much effort to feel as if he has earned the right to be successful (another belief)