FOR TRADERS --- AVERAGING DOWN ON THE WAY UP

[Steve]

macdunk, are you able to post a chart demonstrating it in action?

[whiteheron]

macdunk

Yep , time is money

I generally take a good look at my holdings about once a week and weed out those that have stalled for maybe a month or so
Nothing too technical at this stage , I just know which ones are dragging the chain

Your idea of the time stops is good --- it allows you to change to stocks that are on the move , quitting those that are going nowhere(at least for the time being )
There is always , of course, the chance of re purchasing a good stock again once its time in the doldrums is up --- eg POT , a top stock that I sold out of too early ( but at a healthy profit nevertheless , and this is what it is about at the end of the day )
Once I get over this short to medium term trading that has gripped me for the present I will be looking at stocks like POT , at the right price of course
In my opinion it is essential to buy in at the right price
I dont go for this time in the market being important stuff ;
I believe it was most probably started by Brokers to explain away getting clients into the market at wrong phase of a cycle
As it can take many years to recover from a purchase at the top of the market , even with a good stock , what a waste of money and opportunity !!!

Another matter that is of more than a little importance to me is brokerage
I trade on line via ASB Securities ; they are okay and their staff are always polite and helpful , but I feel that some of their systems could be improved
At $30 a pop I figure that I pay ASB Secs something like $500 to $1,000 per month depending on activity at the time , a not insignificant overhead cost
They wont give me a discount as they say this is their rock bottom price
It costs me about 1 % on average to buy and sell ( 0.5 % each way )so it is not too bad , but if I could trade double the amount each time I could cut this in half so I am looking at this option
Now that I have improved my good / bad trade ratio markedly I think I will give this a go
The money saved would be better in my pocket than the Brokers

There is never an end to learning in this game and there is never a right or wrong way to do things --- but if we achieve our goals thats pleasing

[duncan macgregor]

Steve, I am too simple a chap to do that, but i will explain best i can, with examples. I set my sights on 20pc plus dividends or better as my bottom line. I select my company in my normal way then go back to what the price was six weeks previous, and that is my bottom line which must increase by 20pc pa. My time line starts at that lower level and must trend up at 20pc or more and trails under the share price. If ever the sp drops below that line then i am out of there.
When a share price stalls, my time line or my stop loss will tell me to sell. This system got me out of a share before my stop loss because lots of times the sp will level off and stay there without dropping low enough for a stop loss or trend up at a very slow rate. MHI is a good example over the years trends up and stops trends up and stops. HQP, POT, AIA, were all sold with my time stop when the trend slowed off. Selling was my big problem, timing the sale. I found that was where i missed out. This way i find makes the decision easier. It is better to get out and buy back in later when it starts going again. MHI did nothing one year then started trending the next year. Sometimes with a high trending share i adjust my time line higher if it gets to far under.
happy investing macdunk

[KJ]

I am new to short term trading and have been trading in the last few months-I keep this separate from LT portfolio.

I have completed 3 trades-I only trade in stocks that are in a strong uptrend and therefore I buy high and sell higher.In other words I attempt to buy when a correction takes place and sell quite quickly.

Between Oct and Dec I have bought and sold FBU,RYM, and EBO-often it appears that stocks that pause (and fall back slightly)tend to move up quite quickly initially when they move again.
This brings me to Macdunk's point on length of time in a trade.In each of the trades that I mentioned margins were FBU 15.2%,RYM 8.7%,and EBO 6.8%. RYM was the best trade as it ran for 3 wks.
In each of these cases the first 3 to 4 weeks was where the quick gain came from.

As I said I am a novice at trading and still working on my game plan.

[Dazza]

macdunc
so 6 weeks back u check to see if it went up 20%? or 20% pa?

if im not mistaken, they are 2 different things?

20% = 20%
20% pa = ... 6 weeks.. so thats 6/52 times 20% = 2.3%?

im sure u meant increase of 20%? just checking...

so if in 6 weeks.. the stock didnt move up 20%... then u will sell? a bit hard in NZL dun u tink?!

[45south]

Hi there. I,m finding this a very interesting thread.
You sound like a wise one Whiteheheron,especially your posting on 6/1.
Unfortunatly I,m like a boy in a loly shop and like to have a bit of every thing.
ASX 10 stocks NZX 12 stocks
But I have a heavy weighting in about six. When I get a liking for one I tend to wade into it.Used to be Powerco.
Like you I have moved onto oz resource stocks. I don,t beleive China India or Asia in general is going to slow down.
I pick up most of my tips on these threads, go through Co records, then decide.
I don,t run stop loses.If a share drops I decide wether it has got the potental to come back and will hold eg AUO or sell eg BGR
If it stays flat eg HQP MHI I look at it the same way,
HQP has got the potential to rise, MHI is fully valued- undecided.
I,m defiantly not in to short term trading getting in and out of shares when theres 10% or 20% variation.Each Co on its own merits.
But I do make the odd bulls up. eg Bying BGR on the way down,but RPL has more than made for it.

[Phaedrus]

Whiteheron,
The system you describe is not averaging down - even on the way up! The essential feature of averaging down is that [u]the original investment continues to be held.</u> Buying more shares whilst retaining your original parcel has the effect of lowering the unit price you have paid for the combined holding. This sounds good on paper, but you are better off to sell the original holding as soon as it is obvious that you have made a mistake. You then have that much more money to buy back in again when/if the downtrend ends.

You are doing a series of completely separate short-term trades that just happen to be with the same stock. No averaging down there! That's why I'm not criticising your system - only what you call it!

[duncan macgregor]

DAZZA, The problem i had was holding a share that was going nowhere, or a complete waste of time. The share that goes sideways and wont even trigger a stop loss, how was i going to know when to get rid of it and why. I set my bottom acheivable line in time then decided that when the price crossed that line i was out of there, even although the trend was still up but at a slower acceptable rate.
The time line gets drawn on the chart in advance of the action, unlike the normal TA methods that draw the lines after. I still use my stop losses, and buying methods, but have added this time stop.
Lets take a play i am making at this very moment as an example.
NOG bought in at average price $1-08. In jan i decided the six week time was to volatile with this stock so went for a five pc instead. Therefore if from $1-03 to $1-24 in 12 months the price drops below that bottom line of then i am wasting time, and get out.
On the other hand if the stock rises faster than my time line then i re adjust it up to my stop loss level and take it from there.
I look on 20pc pa plus dividends as my bottom line or better.
macdunk

[winner69]

quote:Originally posted by duncan macgregor

DAZZA, The problem i had was holding a share that was going nowhere, or a complete waste of time. The share that goes sideways and wont even trigger a stop loss, how was i going to know when to get rid of it and why. I set my bottom acheivable line in time then decided that when the price crossed that line i was out of there, even although the trend was still up but at a slower acceptable rate.
The time line gets drawn on the chart in advance of the action, unlike the normal TA methods that draw the lines after. I still use my stop losses, and buying methods, but have added this time stop.

Sell on a trend line break then ... same method as Phaedrus eh

So you really a TA man ... good on you

[whiteheron]

Phaedrus

Thanks for that

I take your point about the completely separate short term trades , as each time that you sell that completes that deal and you start again later with an entirely new trade
Each trade is then able to be judged on its own merits

Sometimes of course I purchase a stock in two or three bites and then sell all together ( keeps those Brokerage costs down )