3) Being Right or Making Money – When to Buy (1/3)

Ok, now we have gotten what to buy, and how much to buy…this step of when to buy I think is the most exciting for us… so most definitely, there is quite a lot to comment on.

“eh siao lian eh….gin la gin la…sibei long winded leh…”

There are no shortcuts for successful trading (my opinion). We can’t choose which part of a trading system is our favourite and implement it (stock picking, profit target setting, buying), but choose to ignore the rest of the “package” (risk management, drawdowns, position sizing, stops), which is not interesting.

If you realise, the 1st 2 steps actually helps control risk (liquidity risk in the what to buy, and capital exposure risk in the position sizing….) the 3rd step here for me is also about controlling risk too! Let me get to it later.

The easiest and best odds for us to win and be profitabe in the markets is trade in harmony with the current prevalent trend…unless of course you are a genius and as smart as this guy ….

I believe the very best money is made at the market turns. Everyone says you get killed trying to pick tops and bottoms and you make all your money by playing the trend in the middle. Well for twelve years I have been missing the meat in the middle but I have made a lot of money at tops and bottoms. Paul Tudor Jones

Of course, different traders have different methodology…you can just say who is right or wrong.

One of the most helpful things that anybody can learn is to give up trying to catch the last eight – or the first. These two are the most expensive eights in the world. They have costs stock traders, in the aggregate, enough millions of dollars to build a concrete highway across the continent. Jesse Livermore

Here’s a few more quotes which I find relevant….relevant 100yrs ago, and still do today…

In a bull market your game is to buy and hold until you believe that the bull market is near it’s end. To do this you must study general conditions and not tips or special factors affecting individual stocks.

I have learned to study general conditions, to take a position and stick to it.
Jesse Livermore

Remaining in synch with the trend — no matter one’s personal feelings — is the best assurance of participating in bull markets and protecting precious capital in bear markets by sitting in cash…Of course, there are many strategies, and the one discussed in these reports is just one. It is a good fit for many, but certainly not everyone. Kevin Marder

http://www.marketwatch.com/story/so-far-so-good-for-equities-2013-02-07?link=MW_TD

There is no need to trade all the time. It is best to buy at right time and at the right price. What is the right time? For me, that is when the uptrend has properly established itself. Meaning, we will never be able to buy right at the bottom. We are not bottom fishing here…just looking to capture majority of the swing… The main question now is, how the f**k hell do we know when a trend is on?

There are many ways to determine and measure trends. The most basic is perhaps drawing a trend line sloping upwards along the lows or dips of the price charts. But this method is a bit too ambiguous and a bit late for my liking.

Another way, according to Elder’s Triple Screen, 1st screen filter is using a higher time frame to analyse first. For the majority of us trading on daily charts, the higher time frame is naturally the weekly chart.

Elder uses 2 moving averages, a longer term to determine trend on the weekly chart, a shorter term one to determine weekly “Impulse”. Very very briefly, impulse for him is depended on signals from the MACD and the shorter term MA. Both down tick, is red, strictly no buying considerations. Either 1 tick up, blue, neutral, can buy or sell. Both uptick, green, go long.

Anyway, the real strategy which triple screen is based on is buying on the ‘dip’ or ‘pullback’ or ‘bullish flag’ of an uptrend…not exactly or strictly a trend following strategy….

I will try to elaborate how I use triple screen later (another post) as it will be quite tedious. Anyway, longer term MA (weekly chart) can be used to determine trends for trading in the shorter term (daily chart)

A few trend following systems or strategies can be seen here; http://www.automated-trading-system.com/state-of-trend-following-in-december/

Most of them are “breakout” systems, the most popular for me, I think is the Turtles’ Donchian Channel breakout, other more simple way to trade trends are MA crossover, MACD Crossover, S/R Breakout, Bollinger Band Breakout etc….

There are probably more complicated or simple ways of measuring trends out there…I wont know them all…i dun even know most of them anyway….

Ok, this is probably enough for now… I will continue later on the 1 indicator that I faithfully use to measure trend…. Market Breadth.

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