FA vs TA

[lithium]

So if I want to be able to trade consistently successfully...... I should be more quiet

[kennynah]

hahaha....sorry ba....dont mean to say you....dont be offended ok...

i think the phenomenon of being "quieter" is not so much done purposely...it is more becos the trader inexplicably becomes less "attached" to the market but is still fully cognizant of his positions vis-a-vis market action.... and bcos he is further detached, he becomes less emotional...goes about his other business and naturally becomes "quieter"....

this is just my personal view....

[lithium]

Shhhh........ if you don't want to lose money...........

[trendlines]

I thought the key to making a true fortune is to buy smart AND sell smart.

I can't see how one can make money if we don't sell smart.

From that perspective, 'selling smart' is parts and parcel of risk management.

Agree with you. If you read his whole article, he was referring to 'short-selling', when he says 'selling smart'.
Most of the richest people on the planet are 'smart buyers', while there are hedge funds going bankrupt every other day.

[winston]

A Focused Strategy For Investing By Jim Farrish

What do I mean by a focused strategy? Nothing more than defining the principles by which you will manage your money.

There are three primary methods investors use, technical, fundamental and quantitative. Each has its respective merits and benefits. Defining which fits your style of investing as well as you personality for investing is the first step of the process.

Technical analysis is the science of recording, in graphic form, the history of trading (price changes, volume, etc.) in a certain stock or index and the deducing from that study or chart the potential future trend. The most common form of technical analysis is trend following or charting.

Trendlines define the market direction by connecting a series of higher lows or lower highs. They create a line showing direction or trend of the specific chart you are looking at relative to a sector, index, or stock. You can then expand the process into using technical indicators to define momentum, volume, and many other data points to develop strategies for entry and exit points derived from the conclusions. The popularity of technical analysis has spawned an entirely new group of investors.

Fundamental analysis is the science of studying the financial accounting data relative to a specific stock. Some of the most common studies are price to earnings ratios, price to sales ratios and price earnings to growth. The analysis of the data leads one to the conclusion relative to the financial health of the company or stock.

The same studies can be applied to a industry group to determine the financial health of the entire sector or indices. Fundamental analysis is generally the most commonly used approach, but does require a solid understanding of accounting relative to profit and loss statements and balance sheets. Many analysts on Wall Street subscribe to this valuation process exclusively.

Quantitative analysis is a black box style of trading based on a specific formula. It is based on mathematical computations to forecast the outcome based on a predefined scenario. It is designed to take the human element or emotion out of the trading process.

The greatest challenge with this strategy is you must spend time building and modifying the box. Most individual traders/investors don’t have the time to construct this strategy properly.

The challenge lies in developing and implementing a disciplined strategy for your money and the management process. Before you set out to build a sophisticated strategy for scanning the market and then implementing a discipline around the strategy for the investment process, (entry, exit and target) start simple and progress the complexity as need be based on your goals and objectives.

Learn the basics of both fundamental and technical analysis to set the foundation and build your strategy to what you want. The key is focus! Like most things in life, the number of options can be overwhelming and the more focused you can make the process the better.

An example for technical analysis is to start with simple trend analysis and pick two or three indicators you like and and understand. Volume, Stochastic, MACD, Moving Averages, etc. all add value when looking at charts, but too many of them and you get paralyzed by the implications.

“The Visual Investor”, by John Murphy, is a good learning tool for indicators and simple technical analysis. Starting with this process would allow you to track potential entry points, trend reversals, pattern or consolidation breakouts, and moving average crossovers. Each easy enough to learn and track.

You can define entry, stops and target points based on each and then build on the strategy with other indicators. Focus is the primary element in this process that helps you as an investor focus versus a shot gun approach.

http://www.dailymarkets.com/stock/2010/ ... investing/

[winston]

At last, somebody is telling you that "rojak" is the most superior

Value Investors Should Watch Momentum By Steve Alexander

NEW YORK (MagicDiligence.com) -- Price momentum as a stock performance predictor is often scoffed at by fundamental value investors and "efficient market" academics.

Momentum, they will tell you, has nothing to do with the fundamental factors that drive growth in revenue, profits and book value -- the ultimate factors that determine the value of a business and, hence, the price of a stock.

No less an authority than Warren Buffett has said that past prices are only good at predicting past returns! Many value investors even believe that the stocks that have been the most beaten down make the best investments because the stock price is logically closer to the bottom.

On the other hand, there are armies of technically oriented traders that use nothing except than price charts to make investment decisions!
So who is correct?

Believe it or not, there is pretty convincing research that price momentum does make a difference over a 1-year investment horizon, the period targeted by Magic Formula Investing (MFI).

The most convincing study can be found in James O'Shaughnessy's book What Works on Wall Street (the Kindle version costs less than $6), in which the author back-tests a number of mechanical investing strategies over a 42-year period, rebalancing annually.

O'Shaughnessy's study confirmed some things that we already believe. Stocks with low valuations -- low price-to-earnings ratios, low price-to-cash flow ratios, low price-to-book ratios and low price-to-sales ratios -- outperformed the S&P 500 over his sample period.

Stocks with the inverse (high P/E, etc.) all underperformed the market.

Additionally, O'Shaughnessy found that stocks with high returns on equity (ROE) also trounced the S&P, giving further support to the MFI strategy, which focuses solely on high earnings yields (equivalent to low P/E) and high returns on capital (i.e., high ROE).

What was more surprising were his findings on price momentum, defined in the book as high trailing 12-month stock price appreciation. The stocks with the best price momentum greatly outperformed the market, although they did so with high volatility.

On the other hand, buying the stocks with the worst price momentum was a sure path to disaster. It was the worst performing mechanical strategy, returning just 3.3% on a compounded annual basis vs. the S&P's 11.51%.

The best strategies combined both value and momentum to deliver really excellent returns. All of the top 10 performing strategies used price momentum as a filtering component, and four of the top six combined price momentum with one of the value ratios listed above.

Look at how adding price momentum influenced already good value screening strategies. These are compounded annual returns, vs. 11.51% for the S&P.

Low price-to-sales ratio: 15.54%. With high price momentum: 18.62% (this was the best performing screen).

Low price-to-book ratio: 14.80%. With high price momentum: 17.95%.

Low P/E: 12.07%. With high price momentum: 18.52%.

High ROE: 12.52%. With high price momentum: 17.10%.


With these results in mind, perhaps price momentum is an important thing to consider when choosing Magic Formula stocks for your portfolio?

In the short run, the price of a stock is determined by people, and people are more inclined to let emotion, not logic, dictate their decisions. Emotions run high for stocks that go up, and run low for stocks that have gone down.

Momentum is important over short holding periods ..


http://www.thestreet.com/story/10985725 ... ooyah_html

[winston]

The Most Important Lesson from One of the Best Traders I've Ever Known By Dr. Steve Sjuggerud
Thursday, May 26, 2011


My subscribers pocketed a 995% gain in shares of Seabridge Gold by following investor Albert Friedberg…

I've always had great respect for Friedberg and his team. They knew their investing themes from every angle… the politics, the economics, the fundamentals, the risk-versus-reward. And when an idea passed through all their hoops and hurdles, they invested big.

So when I started out writing an investment letter over 15 years ago, I spoke with Chris Foster at Friedberg a few times a week. I knew if Chris couldn't punch any holes in one of my investing ideas, nobody could.

Chris eventually left Friedberg to start his own hedge fund. Something he said shocked me…

"Steve," Chris said, "I didn't start making big money in my trades until I finally forgot about the fundamentals completely."

If anyone else had said it, I'd have dismissed it completely. The traditional thinking is that the fundamentals are as important to investing as the air we breathe is to living.

But Chris tracks just two things:
1) investor sentiment and
2) the trend.

And he's put up a fantastic track record doing just that. (You can see Chris explain the idea on a recent video interview with BNN TV.)

In the last couple of years, we've been computer testing every possible investing strategy to build my new product, True Wealth Systems. I've been shocked at the results…

Chris was right. The big money really is in the trend.

Here's a simple example of a True Wealth Systems model for the overall stock market.

With all the events of the last decade – the dot-com bubble, 9/11, the failure of Lehman Brothers – few strategies have been consistently right. Meanwhile, if you simply used an incredibly "boring" trend-following system, you could have been on the right side of the major trends through all of that.

You wouldn't have needed anything fancy. You could just buy the market when it's trading above a long-term moving average (like a nine-month or 10-month moving average) and step aside when it's below it.

It's not just in stocks. After spending hundreds of thousands of dollars and years testing just about everything for True Wealth Systems, the inescapable conclusion is that in most cases simple trend-following systems have proven to make money better than just about anything else.

Most academics won't want to hear this. It sounds crazy that "not thinking" (following the existing trend) can beat "thinking." But historically, it's true.

My friend Michael Covel says, "The name of the game is not about getting an 'A' in balance-sheet reading. It's about making money."

Right now, everyone in the world is panicked…

You hear it non-stop. The U.S. debt is going to kill us… Greece is going under… China is taking over… We can't get entitlement spending under control… The LinkedIn IPO was a bad sign…

The thing is, there are ALWAYS reasons to panic.

There are always fundamental events that are going to affect your investments. The amazing reality is, few people can interpret how those fundamentals will affect investments as well as someone who simply follows the existing trend. The chart above tells that story well.

Right now, True Wealth Systems says the long-term trend is still up, in just about everything. You can watch the fundamentals, get worried, and not make any money.

Or you can stay in the trade, like we have in True Wealth Systems.

www.dailywealth.com

[winston]

I tend to use FA more than I use TA.

However, for the Chinese stocks, whether listed in SGX or HKSE, I think that TA may be a bit better.

This is because you cant trust their numbers, so TA would be a leading indicator to help you run before things explode in your face.

On a few occasions, the TA indicators were flashing red yet I chose to ignore them.

[winston]

HK Market

Fact is, if you based buying calls on certain "fundamentals," you were wrong.

If you traded on technical analysis and cut losses when key supports levels were breached, you were also wrong.

Source: Dr. Check, The Standard HK

http://www.thestandard.com.hk/news_deta ... 10919&fc=1

[winston]

Watch sentiment more closely than technicals or fundamentals.

Pay attention to the squishier things in a crash moreso than you would normally.

Are people screaming in pain? Or are they still looking for a bottom? Or have they given up entirely?

There is no math to this, a lot of it is "feel".

http://www.thereformedbroker.com/2011/0 ... mandments/