Help me to love stocks!

[brewer12345]

Using technical analysis and understanding trends.

Cut that out. The Boss is in a meeting in the next room and he'll hear me if I laugh out loud.

 

[bosco]

Using technical analysis and understanding trends. Hopefully it was obvious to most that when the internet bubble burst, they should get out of tech stocks.

I actively manage my money, but the idea I'm presenting is to ride the stock up, through a the usual ups and downs, but if the stock is in a clear downtrend, to not hold onto it because it does not make any sense. I'm not saying to buy and sell every week. Buy when an industry is doing well and sell when it is not. This could be maybe one or two (or less) buy/sells a year. If money was invested in real-estate a few years ago, you could still be holding onto that. I'm not suggesting actively managing the money, just know what has momentum and what is slowing down or reversing.

and you've been doing this for how long? and your track record is?

Unless you have a fairly rigid mechanical system that removes your emotions from the process, I suspect you will find out it is not nearly as easy as you say/think.

If you do have such a system (or pay to get signals from someone who does), it is likely that you may experience some success for a while, but unlikely that you will significantly beat the market averages over the long haul.

There are, however, some pretty good systems out there that can equal or even slightly beat market averages. Their big plus, in my mind, however, is that they reduce volatility and increase your risk-adjusted return. Very few can consistently beat the market averages, as Mark Hulbert as adequately demonstrated.

All approaches, whether timing or buy and hold, entail an emotional cost. Emotional reactions are a very individual thing. I think people should take the approach that is

1) consistent (i.e. that they can stick to)

and

2) fairly rigid or mechanical (doesn't require you to constantly agonize over what to do on a daily basis--this is the recipe for failure)

ANY approach that you can stick with will beat one that you abandon due to panic or distress.

Don't ask me how I know this....

 

[ebisky]

and you've been doing this for how long? and your track record is?

Unless you have a fairly rigid mechanical system that removes your emotions from the process, I suspect you will find out it is not nearly as easy as you say/think.

If you do have such a system (or pay to get signals from someone who does), it is likely that you may experience some success for a while, but unlikely that you will significantly beat the market averages over the long haul.

There are, however, some pretty good systems out there that can equal or even slightly beat market averages. Their big plus, in my mind, however, is that they reduce volatility and increase your risk-adjusted return. Very few can consistently beat the market averages, as Mark Hulbert as adequately demonstrated.

All approaches, whether timing or buy and hold, entail an emotional cost. Emotional reactions are a very individual thing. I think people should take the approach that is

1) consistent (i.e. that they can stick to)

and

2) fairly rigid or mechanical (doesn't require you to constantly agonize over what to do on a daily basis--this is the recipe for failure)

ANY approach that you can stick with will beat one that you abandon due to panic or distress.

Don't ask me how I know this....

For swing or day trading these principles hold true, yet investing in industries is an easy way to invest with minimal risk and beat the market that does not require much, if any active management of the funds. This is all I'm trying to get at. I'm talking about ETFs or any other fund that tracks industries. Diversify, of course, but I'd suggest moving the majority of your investments into industries that are doing well instead of investing in a fund that tracks the S&P 500 or another major market. I'm suggesting doing a few trades a year at max(maybe none), not trading every day/week/month. Move your funds into areas that are growing.

 

[Ed_The_Gypsy]

And bosco quoth:

ANY approach that you can stick with will beat one that you abandon due to panic or distress.

Don't ask me how I know this....

I think you and I could put together a 12-step program on this. "Friends of Dory36"?

El Gitano

 

[bosco]

For swing or day trading these principles hold true, yet investing in industries is an easy way to invest with minimal risk and beat the market that does not require much, if any active management of the funds. This is all I'm trying to get at. I'm talking about ETFs or any other fund that tracks industries. Diversify, of course, but I'd suggest moving the majority of your investments into industries that are doing well instead of investing in a fund that tracks the S&P 500 or another major market. I'm suggesting doing a few trades a year at max(maybe none), not trading every day/week/month. Move your funds into areas that are growing.

this is called "chasing the hot sectors"

lotsa luck...

 

[ebisky]

this is called "chasing the hot sectors"

lotsa luck...

Check out the 1 year returns of the Vanguard energy and real estate ETFs.

No chasing here. Investing. These are also not hot markets. They have been stable markets in a long term uptrend(at least they have been in the past, as I said real estate is a it iffy at this point).

 

[cute fuzzy bunny]

Cut that out. The Boss is in a meeting in the next room and he'll hear me if I laugh out loud.

Too late. The wife (aka "the boss") just asked "Now what the hell is so funny?".

 

[brewer12345]

Check out the 1 year returns of the Vanguard energy and real estate ETFs.

Great, now where can I get next year's return numbers for them?

 

[73ss454]

Great, now where can I get next year's return numbers for them?

Next year's WSJ

 

[REWahoo]

ebisky,

After reading your recent posts putting forth your investment strategy and offering posters investment advice, I'm just a little curious about your background and experience level in the equity markets.

You mentioned in your initial post back in January that you were in your final semester in college. That could mean you are anywhere from 20 to 100 or so, but the odds are you are on the low end of that range. So how long have you been investing and how did you develop your strategy? How did it hold up in the roller coaster we were on this past decade? Or were you too short to be allowed to ride?

 

[cute fuzzy bunny]

Magic 8 ball is uncommitted. Got "it is decidedly so", "ask again later", "reply hazy, try again later".

 

[ebisky]

ebisky,

After reading your recent posts putting forth your investment strategy and offering posters investment advice, I'm just a little curious about your background and experience level in the equity markets.

You mentioned in your initial post back in January that you were in your final semester in college. That could mean you are anywhere from 20 to 100 or so, but the odds are you are on the low end of that range. So how long have you been investing and how did you develop your strategy? How did it hold up in the roller coaster we were on this past decade? Or were you too short to be allowed to ride?

I've been investing for a little over a year, but don't let my inexperience fool you into thinking I don't know the markets. I've read many books and continue to educate myself about the market. I also trade almost every day and surround myself with professionals.

The strategy I am suggesting here is not one I use. I am a swing trader, so I don't hold investments for longer than a few days (if that), however, I know enough about how the market works to know that investing in industries as a safe investment is a good idea. I've looked at the charts and studied how the ETFs move.

My main point is that if you are investing in index funds, to invest in industries and not the overall market. When I have a full time position, I will start actually "investing" my money and it will go into index funds. Any profits I make off my active investments I will move over into index funds. Knowing which industries are doing well is not very difficult and would not take a lot of time or research to figure out.

I'm just trying to help out. Take my advice or leave it. I suggest at least to look into it. Investing in industries makes sense. It's safer than investing in individual stocks due to diversifying within the entire industry, yet you get the benefits of the momentum from specific industries.

-E

 

[REWahoo]

I've been investing for a little over a year, but don't let my inexperience fool you into thinking I don't know the markets. I've read many books and continue to educate myself about the market. I also trade almost every day and surround myself with professionals.

I sincerely wish you and the professionals surrounding you the very best.
Just out of curiosity, which way are they facing?

 

[bosco]

I've looked at the charts and studied how the ETFs move.

we've all studied and looked at the charts. Unfortunately, none of us can see the part of the chart just to the right of the right edge, and that's the part of it that seems to have the most effect on whether we've made a good investment or not.

I suspect that there are more than a few of us here that believed, at some point in the past, that we had it all figured out. Some of us even had the bad luck to succeed for a few years before we got our comeuppance. Maybe you are different. No offense, but I won't be betting my money on it. Especially since you just stated that you don't use this "safe" approach yourself.

 

[ebisky]

we've all studied and looked at the charts. Unfortunately, none of us can see the part of the chart just to the right of the right edge, and that's the part of it that seems to have the most effect on whether we've made a good investment or not.

I suspect that there are more than a few of us here that believed, at some point in the past, that we had it all figured out. Some of us even had the bad luck to succeed for a few years before we got our comeuppance. Maybe you are different. No offense, but I won't be betting my money on it. Especially since you just stated that you don't use this "safe" approach yourself.

I understand where you are coming from and realize I might sound a little hypocritical. I am a momentum investor, so I trade symbols, not companies. I use almost all technical analysis. TA is dependable because almost everyone else uses it, especially the big investment firms. For example, if a stock is in an uptrend and crosses below the 20 moving average line, it is a sign that the stock will break into a small downtrend. As long as the falling price doesn't break the uptrend, the stock should rise once again to newer highs. Just at the very basic level of TA using moving averages is almost all a new investor would need for stocks. Use 20, 50, 100, 200 moving average lines on a graph and it will tell you a lot. Here is a simple illustration I drew up of the Vanguard real estate ETF (symbol: VNQ) I use a lot more indicators when analyzing a stock, but this just goes to show how simple tools such as moving averages can be used to predict trends. For example, a great time to buy the VNQ would have been at the beginning of May '05 when the 20 day MA crossed above BOTH the 50 and 100 moving averages...an extremly strong sign of an uptrend. Also notice the very long term trend was never borken. The stock came down to a low of 53.60 in oct '05, which was much higher than the low of 48.46 at the end of March '05. Higher highs, higher lows.

 

[Gone4Good]

Check out the 1 year returns of the Vanguard energy and real estate ETFs.

Congrats on picking last year's winners.  Let me know which sectors will outperform from this point going forward and we'll check back on your results in 365 days.

I've been investing for a little over a year

Not much of a track record.  And I can assure you that there are no secret investing techniques to be found in books.  If it worked, it wouldn't be published.  And if it were published, it wouldn't work any more.

Some friendly advice, beware of your confidence that you have a system that will beat the market.  Everyone is a genius in a bull market (and yes we are still in a bull market for just about everything but a few large caps).  An old roommate once thought he had a system, too.  "Anyone can beat the market" I remember him telling me.  Shortly after the first serious market downdraft we started getting calls from the electric company that our payments were past due.  Turns out his great system busted him and he was taking my share of the communal expenses to buy down some margin debt.  

Good luck with the system.

 

[Gone4Good]

TA is dependable because almost everyone else uses it, especially the big investment firms.

I work on the trading floor of one of the biggest financial institutions on the planet and I can assure you this is not true.

 

[ebisky]

I work on the trading floor of one of the biggest financial institutions on the planet and I can assure you this is not true.

What is it that you do for the financial institution? Do you make investment decisions for the company? The 200 day moving average is a huge market resistance and support line. Major mutual funds and money managers use it almost religiously.

Also, I don't have a "system" and if I used that term in my posts I regret saying it. I am just suggesting to invest in strong industries. Plain and simple. This isn't a complex idea or involves a secret technique. That is why it is so simple and easy to do.

 

[Gone4Good]

Do you make investment decisions for the company? The 200 day moving average is a huge market resistance and support line. Major mutual funds and money managers use it almost religiously.

Yes.

I also talk to all of the "major mutual fund" analysts, PMs and traders, and no, they do not use technical analysis either.

There are small pockets of money that gets invested using technical analysis but it is a backwater in stocks and bonds. I think areas like commodities rely on it to some extent.

Consider that if it were that simple to spot trends using moving averages, volume data, etc. one could simply write a program to execute orders based on the TA buy / sell signals. It's been tried. It doesn't work.

 

[ebisky]

Yes.

I also talk to all of the "major mutual fund" analysts, PMs and traders, and no, they do not use technical analysis either.

There are small pockets of money that gets invested using technical analysis but it is a backwater in stocks and bonds. I think areas like commodities rely on it to some extent.

Consider that if it were that simple to spot trends using moving averages, volume data, etc. one could simply write a program to execute orders based on the TA buy / sell signals. It's been tried. It doesn't work.

Find me one stock out of the top 20 in the NYSE US 100 that does not react to the 200 day MA. You cant.

My point exactly.

Just one BIG example(GE has the biggest stake in the NYSE US 100 with 5.76%):

http://stockcharts.com/h-sc/ui?s=GE&p=D&yr=3&mn=4&dy=0&id=p57029046932

The stock follows the 200 MA almost exactly. Each time the price hit the 200 MA, it acted as support and sent it back up. As soon as the stock started trading under the 200MA, it has gone down and is in a downtrend. The 200 MA now acts as resistance. The stock will hit around $33.95 and move back down. If it manages to break 33.95, it will be in another uptrend.

http://stockcharts.com/h-sc/ui?s=GE&p=D&yr=0&mn=6&dy=0&id=p57029046932

there's the 6 month chart of GE...notice the 200 MA acts as major resistance and support. Look at the 21st of Nov. Notice once it crossed the 200 MA there was a huge price increase...notice when it goes below the 200 MA on the 22nd there is a huge price decrease.

Your friends live in a fantasy world. Tell me who they work for, so I can let my friends know who NOT to invest with.

-E

 

[Gone4Good]

Find me one stock out of the top 20 in the NYSE US 100 that does not react to the 200 day MA. You cant.

Congratulations, you just discovered the perpetual motion money machine.

The stock follows the 200 MA almost exactly. Each time the price hit the 200 MA, it acted as support and sent it back up. As soon as the stock started trading under the 200MA, it has gone down and is in a downtrend. The 200 MA now acts as resistance. The stock will hit around $33.95 and move back down. If it manages to break 33.95, it will be in another uptrend.

So essentially the stock keeps going up until it doesn't and then when it doesn't it will go down until it doesn't. That's brilliant!!

Your friends live in a fantasy world. Tell me who they work for, so I can let my friends know who NOT to invest with.

When you actually join the real world and have some real experience come and talk to me.

 

[ebisky]

Congratulations, you just discovered the perpetual motion money machine.

So essentially the stock keeps going up until it doesn't and then when it doesn't it will go down until it doesn't. That's brilliant!!



When you actually join the real world and have some real experience come and talk to me.

Now you are just talking nonsense. The graphs don't lie. Show me where I'm wrong. Find a stock from the top 20 NYSE US 100 that does not react to the 200 day MA.

Notice the huge spike in volume on those dates that crossed the 200 day MA..I can show you graphs all day of the 200 day MA and its reaction to GE. I bet the majority of those trades were block trades.

Here is a graph of GE when it crossed the 200 day MA from a long uptrend in June '05:

http://stockcharts.com/h-sc/ui?s=GE&p=D&st=2005-06-01&en=2005-07-30&id=p96923601880

Notice again the obvious support/resistance of the 200 day MA..shall I continue? I can do this all day.

Close up of GE during June '04 - Dec '04..the price bounces almost directly off the 200 day MA each time:

http://stockcharts.com/h-sc/ui?s=GE&p=D&st=2004-06-01&en=2004-12-30&id=p96923601880

I'm up over 250% since I started trading last year..how about your friends?

Here is XOM(#2 on the NYSE US 100 list)

http://stockcharts.com/h-sc/ui?s=XOM&p=D&yr=3&mn=6&dy=0&id=p96923601880

http://stockcharts.com/h-sc/ui?s=XOM&p=D&st=2003-09-10&en=2004-01-01&id=p96923601880

^^ Close up of the dip in Nov 03.

http://stockcharts.com/h-sc/ui?s=XOM&p=D&yr=0&mn=6&dy=0&id=p96923601880

^^ Last recent 6 months of XOM..again..200 MA provides support/resistance. Notice today it actually opened right at the 200MA and ended above it..not breaking the 200 MA. A closeup: http://stockcharts.com/h-sc/ui?s=XOM&p=D&yr=0&mn=1&dy=0&id=p96923601880

-E

 

[brewer12345]

Yes.

I also talk to all of the "major mutual fund" analysts, PMs and traders, and no, they do not use technical analysis either. 

There are small pockets of money that gets invested using technical analysis but it is a backwater in stocks and bonds.  I think areas like commodities rely on it to some extent.

Consider that if it were that simple to spot trends using moving averages, volume data, etc. one could simply write a program to execute orders based on the TA buy / sell signals.  It's been tried.  It doesn't work.

Allow me to corroborate what Yrs is saying. I work for a hedge fund with people who are far more experienced than I am. Number of times I have heard one iota of technical "analysis" babble spouted: zero.

ebisky, we are trying very hard to be gentle. You clearly believe in the system you follow. However, real world experience of many of us does not bear out what you are talking about. Do yourself a favor and don't get too bound up in momentum trades. It is very easy to get burned.

 

[cute fuzzy bunny]

I was a fricking stock trading genius from 1995-1999.

 

[Gone4Good]

Now you are just talking nonsense. The graphs don't lie. Show me where I'm wrong.

I really have no desire to argue with you. But don't you think that if this really worked it would be automated and exploited?

All your charts show is that a moving average is the average of historic prices. It tracks the data series by definition. It has no predictive power.

Good luck with it.