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| Tuesday, July 03, 2007 |
| What to buy #1 |
Every decision must be backed by reason. For a fundamentalist, decision will be made based on its core businesses, while for a technical analysts, decision will be made based on price patterns.
For trend following, I see it as a subset of the big world of technical analysts. However, I do not really believe in indicators like Fibonacci and Gann Triangles, or other specific price patterns like "head and shoulders". To me, thats just like astronomy or fortune telling. In my humble opinion, I think timing the market is risky. No one can predict the future consistently in the long run.
Thus though I follow technical indicators like moving averages, they are used to give me an idea of how things are moving, I do not and will never set a target price. I used to have a sell on 5% profit kinda rule in the past, and i think it really sucked (Capitaland was one big lesson. Have I followed my system now, I would have ridden it all the way from 2.54 to 6 bucks, and then maybe reentering it when its 7). I also use other indicators like MACD, money flow index to figure out the trending stocks.
But one issue I face is, which is the better one? For my system, once I locked in on one equity, I have to stay in it till it bends. But question that pops up is, how to find the better one?
What I do is to qualify a position is to
- make sure it shows a distinct trend
- make sure that its not volatile
- make sure risks incured per unit cost is managable*
- make sure that returns per unit risk ratio is attractive*
Price movement don't lie. Every movement has a reason. For example, an equity backed by huge number of fundamental investors will have very strong support lines as they will most probably cost average their holdings if it goes below their intrinsic value. On the other hand, an equity backed by day traders will exhibit volatile movements and this is often shown in equities which are ranging.
A trend follower's favorite trend are those which are stable and trending. It will be best if it is unattractive to day traders.
All in all, I'm still working on lots of stuff and i'm still thinking through the drawdowns of such a system. Personally, i feel the only drawdown is that returns will not be as attractive as the experts.
*Currently experimenting some methods on calculating risks and returns.Labels: What to Buy |
posted by Nenix @ 11:05 AM   |
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| NenixDreams Fund |
| Fund launchprice on 1st August 2006= $1
Target for 2007 = Beat STI index
Current price of NDF as of 1st Oct 2007 = $1.58
Current price of STI as of 1st Oct 2007 = $1.54
Difference with STI index is 0.04
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