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  1. #1
    KW
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    Default Using TA to time entries and exits

    I thought I might start a little discussion on the usefulness of TA for timing. Now I do NOT advocate trading based on TA alone (tried it, lost a lot of money) but if you have used FA to identify a select list of good prospects, TA can be quite useful at knowing when to buy, when to top up, and when to sell. The following are all examples of some of my recent share purchases and sales.

    1. When to BUY
    I only ever buy companies that are in an uptrend. (Tried buying downtrends, lost a lot of money). The trick is to know when to enter. Get in too early, and the uptrend may turn out to be a dead cat bounce, or fizzle out. Get in too late and you may miss most of the run. My favourite entry point is when the 50 day moving average crosses above the 200 day moving average and the share price is above the 50 day MA. While you miss the early run, the risk of the uptrend not continuing is somewhat abated. I have tried entries based on just the share price crossing above both MA, but 3 out of 4 picks fail to continue on. I confirm the trend by watching the MACD (needs to be in positive territory).

    Example: CGF - entry was in early March, when the share price moved back above the 50 day MA and the MACD turned up ($3.64 - $3.81)
    Attachment 4517


    2. When to TOP UP
    Companies that are on exponential uptrends often present difficulties in deciding when to jump in. I have found that many pull back to a moving average, providing excellent entry points while the stock pauses and gets ready for the next leg up. Again, I use the 50 day average and MACD to confirm the uptrend is continuing, rather than the price decline being the start of the new downtrend.

    MFG - has been in a strong uptrend for ages, but it took a breather and retreated to just below its 50 day MA. Entry point would have been end of April when the MACD went positive, and the stock price crossed back above the 50 day MA ($6.94 - $7.14)

    Attachment 4518

    Another great example is SIV - entry point is end of February ($5.90 - $6.28)
    Attachment 4519

    3. When to SELL
    The first warning is when the share price drops below the 50 day moving average and the MACD turns down. This should put the stock on a watch list - its either a good time to top up, or a sell signal is going to be coming up shortly. If the price drops below the 200 day moving average I usually sell (I say usually, because its not uncommon for traders to try to drive the price down that far in order to trigger a bunch of stop losses, so you need to watch out for this little trick as often the share price rebounds immediately. IIN and CSV are good examples of this manipulation). If the "death cross" occurs (where the 50 day moving average crosses below the 200 day moving average, this is a signal that the downtrend is now firmly established).

    ALQ - I bought into this thinking it had turned the corner and was heading back into a strong uptrend. Alas it was not to be, and in mid-March an exit was signalled ($10.50 - $10.80). Even though the price has rebounded recently, its still a death cross situation, and its more likely than not that the downtrend will continue for a while.
    ALQ.jpg

    I hope others find this useful - its how I make decisions at the moment, its very simple, but pretty effective. Its part of my "get rich slow" investment strategy :-) If anyone else has any examples of when they enter or exit, then please post them.
    Last edited by KW; 14-05-2013 at 04:33 PM.

  2. #2
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    Exclamation But wait, there may be more

    Just a post to say how much I appreciate the time and effort you have put into sharing this with us, KW.

    Hopefully I will make time tomorrow to add to the thread.

    Best Wishes
    Paper Tiger
    om mani peme hum

  3. #3
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    Great post KW.

    What FA filters to do you use to narrow down the selection of companies that so you can then go apply TA to.
    You make your own luck.

  4. #4
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    Thanks for posting KW. I like this approach - use FA to find and TA to time.

  5. #5
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    I would endorse the post of KW, I have used this for ages just with slightly different periods. It works for me as well

  6. #6
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    Quote Originally Posted by OldRider View Post
    I would endorse the post of KW, I have used this for ages just with slightly different periods. It works for me as well
    OldRider - you mentioned you use different periods. How did you settle on the ones that you use? Is it based on gut-feel, knowledgeable advice, or researching historical trends?

  7. #7
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    KW - what would be your average hold period?

    When you sell, do you sell down progressively (ie. Sell 25% when things start looking bad, then more/all once confirmed)

    Do you consider yourself a trader or an investor (NZ tax test type definitions. Do you pay CGT or income tax on the gains in Australia - not exactly sure of their rules).

    I have been planning on updating my buy and forget investing strategy.
    Free delivery worldwide with Book Depository http://www.bookdepository.co.uk

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    Banksie:
    I guess you realize there is no right answer to the periods used, as KW mentions in his post each set has its own
    advantages and shortcomings, I am quite sure his will work fine, they are a little more conservative than my 1-20-150.
    I have used my figures for some years now and can't recall what made me settle on them. Probably trial and error
    produced what suited my style.

    Lou:
    You are enquiring how to find a short FA list to apply TA to, I use a simple formula developed years ago, (pre computers)I think originally it might have had its roots with Buffet and Munger, I use it to monitor the entire ASX and NZX usually producing less than twenty
    companies worthy of a closer look. Google "CGVI" comparative growth & value indicator, and see what you can find, if you have further questions ask them here

  9. #9
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    Interesting KW. At the moment many shares are heading up and everyone is jumping in. The market will turn down again at some stage. You mentioned that TA is one tool and you present a good summary of your approaches. One problem for many share owners is "when to sell?" Your TA approach removes the emotional influence on the decision to sell. Do you have any other methods that you have tested to provide a check against the TA approach especially when selling?

  10. #10
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    What charting software are your using KW?

  11. #11
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    KW do you do your own research when looking for increasing earnings/dividends?

    Do you look at forward EPS/DPS forecasts?

    Do you have any portion of your portfolio set aside for speculative/growth stocks i.e won't make your EPS or DPS criteria but have excellent growth prospects?

  12. #12
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    HI Oldrider I am a new to the sharemarket and have not invested yet but am looking to. I found this site and read your post about CGVI and found more info on it but still need to see if I am on the right page so to speak. I found postings from 2003 on shareguru with the above formula and was needing more help with it.When I look at a company on the NZX securities page, Gross Dividend Yields is expressed as a percentage how can I get Dividend Per Share in Cents? and will the EPS, NTA and Share price shown be ok to work out the CGVI and do you still use 24 or greater as to which companies to look further into?

  13. #13
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    Quote Originally Posted by KW View Post
    1. When to BUY
    I only ever buy companies that are in an uptrend. (Tried buying downtrends, lost a lot of money). The trick is to know when to enter. Get in too early, and the uptrend may turn out to be a dead cat bounce, or fizzle out. Get in too late and you may miss most of the run. My favourite entry point is when the 50 day moving average crosses above the 200 day moving average and the share price is above the 50 day MA. While you miss the early run, the risk of the uptrend not continuing is somewhat abated. I have tried entries based on just the share price crossing above both MA, but 3 out of 4 picks fail to continue on. I confirm the trend by watching the MACD (needs to be in positive territory).

    Example: CGF - entry was in early March, when the share price moved back above the 50 day MA and the MACD turned up ($3.64 - $3.81)
    Attachment 4517


    2. When to TOP UP
    Companies that are on exponential uptrends often present difficulties in deciding when to jump in. I have found that many pull back to a moving average, providing excellent entry points while the stock pauses and gets ready for the next leg up. Again, I use the 50 day average and MACD to confirm the uptrend is continuing, rather than the price decline being the start of the new downtrend.

    MFG - has been in a strong uptrend for ages, but it took a breather and retreated to just below its 50 day MA. Entry point would have been end of April when the MACD went positive, and the stock price crossed back above the 50 day MA ($6.94 - $7.14)

    Attachment 4518

    Another great example is SIV - entry point is end of February ($5.90 - $6.28)
    Attachment 4519
    Hey KW, do you ever buy into a stock base on your top up rules?

    For example you like the looks of RYM and it has been in a strong up trend. Your not likely to see a golden cross signal as the 50MA is above the 200MA and will likely continue to remain there. Would you buy into RYM if it met your top up rules?
    You make your own luck.

  14. #14
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    Quote Originally Posted by KW View Post
    I thought I might start a little discussion on the usefulness of TA for timing. Now I do NOT advocate trading based on TA alone (tried it, lost a lot of money) but if you have used FA to identify a select list of good prospects, TA can be quite useful at knowing when to buy, when to top up, and when to sell. The following are all examples of some of my recent share purchases and sales.

    1. When to BUY
    I only ever buy companies that are in an uptrend. (Tried buying downtrends, lost a lot of money). The trick is to know when to enter. Get in too early, and the uptrend may turn out to be a dead cat bounce, or fizzle out. Get in too late and you may miss most of the run. My favourite entry point is when the 50 day moving average crosses above the 200 day moving average and the share price is above the 50 day MA. While you miss the early run, the risk of the uptrend not continuing is somewhat abated. I have tried entries based on just the share price crossing above both MA, but 3 out of 4 picks fail to continue on. I confirm the trend by watching the MACD (needs to be in positive territory).

    Example: CGF - entry was in early March, when the share price moved back above the 50 day MA and the MACD turned up ($3.64 - $3.81)
    Attachment 4517


    2. When to TOP UP
    Companies that are on exponential uptrends often present difficulties in deciding when to jump in. I have found that many pull back to a moving average, providing excellent entry points while the stock pauses and gets ready for the next leg up. Again, I use the 50 day average and MACD to confirm the uptrend is continuing, rather than the price decline being the start of the new downtrend.

    MFG - has been in a strong uptrend for ages, but it took a breather and retreated to just below its 50 day MA. Entry point would have been end of April when the MACD went positive, and the stock price crossed back above the 50 day MA ($6.94 - $7.14)

    Attachment 4518

    Another great example is SIV - entry point is end of February ($5.90 - $6.28)
    Attachment 4519

    3. When to SELL
    The first warning is when the share price drops below the 50 day moving average and the MACD turns down. This should put the stock on a watch list - its either a good time to top up, or a sell signal is going to be coming up shortly. If the price drops below the 200 day moving average I usually sell (I say usually, because its not uncommon for traders to try to drive the price down that far in order to trigger a bunch of stop losses, so you need to watch out for this little trick as often the share price rebounds immediately. IIN and CSV are good examples of this manipulation). If the "death cross" occurs (where the 50 day moving average crosses below the 200 day moving average, this is a signal that the downtrend is now firmly established).

    ALQ - I bought into this thinking it had turned the corner and was heading back into a strong uptrend. Alas it was not to be, and in mid-March an exit was signalled ($10.50 - $10.80). Even though the price has rebounded recently, its still a death cross situation, and its more likely than not that the downtrend will continue for a while.
    ALQ.jpg

    I hope others find this useful - its how I make decisions at the moment, its very simple, but pretty effective. Its part of my "get rich slow" investment strategy :-) If anyone else has any examples of when they enter or exit, then please post them.
    KW This is an excellent piece of information you have passed on .Thank You.

    As I read your Post I recall what had happened to myself in the past .An example of this is with Greencross with my pre entered STOPLOSS. I knew that the instant share price crash happened for a reason but I could not pin it down.As a result my Stoploss triggered and I was wondering what the hell happen here and for what reason and so fast. ( ie 5 minutes)

    Now after reading your post I can see why.

    Snakes in the grass looking for a feast of cheap shares by suddenly dropping the share price of excellent shares like Greencross and triggering stoplosses.

    Then instantly buying in after the crash.

    You are the first person to state what I have suffered in the past with stoploss.

    Cheers for that once again
    Last edited by blocker3; 18-01-2014 at 05:42 AM.

  15. #15
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    Many thanks KW - very interesting thread

    What settings would you favor for the MACD indicator?

    cheers

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