Using TA to time entries and exits

[Yoda]

Thanks for the excellent reply and advice on the current market. I have noticed quite a few of my stocks have stalled over the last 3-4 months .HNZ MFT, AIR, PGW, RHC IFT. all a bit slower than i expected, but above the water line, RBD doing well for now but watching for a slow down.
Maybe KMD is one of your yappy terriers , but tempted... But probably too soon, and as you say, there is usually a good reason.
MFT got me worried there, so sold out,and just bought back.
i love this site
thanks for your wisdom

[toast2success]

where would be a starting place fro someone new to TA to learn more (any recommended books on TA ?) / start practicing with some data ?

[Hoop]

Meridian broke out of its downtrend on Friday...it also broke out of its symmetrical triangle pattern, however it still has a bit of work to do to confirm that it has bottomed out...Friday's rise seems to be the result of a few buyers preempting Mondays Tiwai Point decision...

Is it a TA buy?....sort of... short term (more risk) yes.. medium term (lesser risk) not yet...MEL chart is yet to look good TA-wise...until one draws in it's pattern behaviour then sees that some magical stuff has been happening...

If anyone is writing a book about Triangle chart patterns and need a diagram then look no further than MEL's daily chart.
It's no secret that extended old triangle lines make good S&R lines, however there's little to no mention of them outside textbooks less alone seeing an example of one.
I've been drawing charts for many years, and Friday's MEL's chart blew me away..

Triangle patterns patterns form when large investors buy or sell at a predetermined price and dictate the market..such as when MEL started to turn down in price around March this year, there were some large buyers willing to mop up the "cheap" shares at $2.35 and when these buyers left the market MEL shares quickly fell out of its descending triangle pattern..
Symmetrical Triangle patterns see two equally opposing camps in play, the investors thinking its going to go up buying in at the dips and the other group who think its going to go down selling out when the share rises..

So where too from here?....It seems from the charted history that MEL price is dictated by Triangle extensions so the $2.28 and $2.35 would seemingly also be points of resistance and concerns for the chartist investor..If MEL can jump these hurdles then the share price should quickly increase....The chances that MEL can do this is better than 50/50 (Bulkowski) as it has already broken up out of the symmetrical triangle pattern which could be inside a possible still forming bullish ascending triangle pattern...

This lovely chart below is a rare well behaved beautiful beast...A chartists dream.

[Snoopy]

If you had bought $10,000 worth of FET shares 10 years ago you would have had 6,993 shares (@$1.43) which would be worth $14,545 today (@$2.08). Some might say thats not a bad return - 45% over 10 years. But over that time period you would have had to watch your investment drop to $0.14 - your $10,000 would have been worth $979 at the bottom of the bear market! How well would you have been sleeping then? You would not have gotten back to even until March 2013 - thats 7.5 years before you start to make a profit on your original investment.

However, if you had utilised the most basic of TA exit signals (in this case the 50 and 200 week moving average) you would have sold your shares in December 2007 (breach of the 200 MA) for $1.60 netting you $11,188. You then would have sat out the market drop until September 09, when using your $11k you would have bought back in at $0.38 (price above the 50 MA). This would have given you 29,444 shares which would be worth $61,243 today. Or a 610% return on your money.

45% or 610%? Your choice. Don't get trapped in a bear market. And if you have sold out, don't forget to buy back in once the share price recovers. You don't need to pick absolute tops or bottoms - you just need to be on the right side of the trend.

FYI - FET is an AREIT, a stable dividend paying stock.

I don't want to question KW 's post. KW has been very successful in the Oz market, and when reading a KW post you can be sure that the content is a collection of diligence and accuracy. However, the last emboldened bit had me asking the question:

"How did a 'stable dividend paying stock', plunge over 90% in a single dive?"

The 6th November 2008 ASX release provides the answer.

--------

ASX Announcement
6 November 2008
MARKET UPDATE – AUSTRALIAN EDUCATION TRUST
Australian Education Trust (ASX:AEU) announces a market update following today’s announcement that ABC Learning Centres Limited (“ABC”) has been placed into Voluntary Administration and that ABC’s Banking Syndicate has appointed a Receiver.

<snip>
The Australian Education Trust is a Listed Property Trust that independently invests to the benefit of its unitholders in childcare and other assets. As at 30 June 2008, it owned 437 childcare centre properties across Australia and New Zealand of which approximately 95% are leased on the basis of long term triple net leases to ABC.

-----------

So this stable dividend paying stock had 95% of their assets leased to one company that went bust? I can now see why Mr Market would have reacted the way he did, driving the price down to under 15c. This "95% in one basket" raises a big red flag for me, not only in hindsight. Why when seeking a secure steady income would you invest in a company that was 95% beholden to the fortunes of another company, like the highly leveraged and aggressively acquisitive ABC learning? Yes this was a high dividend paying stock. But the potential instability was there for all to see. So I would take issue with that one word 'stable', in KW's description of FET.

As I have previously said I have no issue with the numbers that KW presents. But why this focus on that share price ten years ago? Sure its a valid example. But what about the 'buy and hold' investor that bought in nine years ago, eight years ago, seven years ago, six years ago? There is nothing particular about this 10 year old start point except that it makes the trader look good, with hindsight, against the particular buy and hold investor that bought on that date. What about all those other buy and hold investors that KW didn't mention that are rather better off in relative terms than the unfortunate sod that KW highlighted? The KW post is an example of 'selection bias'. The post is perfectly correct. But it doesn't tell the full story.

SNOOPY

[percy]

Lo and behold..!!!!!!
Just when one could be forgiven for thinking EBO was rangebond,EBO springs back into life, and confirms the very long term upward share price trajectory is in tact,by setting another all time high.NB just gone ex dividend too.!!!!! lol...

Above posted 15-03-2015.
Right on the money!
The long term upward share price trajectory remains intact.!!
Another all time high.!!
When you invest in quality companies you achieve quality results.
Buy the best, and you get the best.!

[blu3]

I just went through this thread and would like to express my gratitude for sharing all these valuable insights so far—this is my first introduction to TA (Timing Analysis) and it already helped me to see things under another angle. While going through all my stocks I noticed that, if I had applied these recommendations, I would have done pretty well instead of being deep in the red and not knowing what to do next. In other words, many thanks KW! I only wished that I'd read it 2 years ago already.


While I'm here, I do have a couple of questions if that's ok?

#1
Do you usually sell a stock at once or only a part of it? Or do you adapt your strategy according to the TA indications?


#2

Favourite tools are moving averages, volume, support and resistance levels, 24/56/18 MACD.

In that other thread you were referring to a MACD of 24/56/18 when you were mentioning using the common default values (12, 26, 9) on this current thread—any reason for this change? Does it has anything to do with adopting a more conservative approach now that the bull seems to be over?


#3

FA rules are equally simple - 3 years increasing earnings per share (must be profitable!), 3 years increasing dividends, double digit returns on equity and capital (or 3 years of increasing returns, which looks like getting them to double digits), and a P/E below 15 (preferably, but this is not a hard rule). Sometimes I throw a wild card in there, but the company must still meet at least some of those requirements - being profitable is an absolute rule.

Is it really all you're looking for FA-wise when buying a stock? Also, do you use a specific stock screener to find stocks matching these parameters or do you perform the search manually?


Regarding the convergence of the EMAs on the DIL chart, ft.com seems to provide more accurate results—furthermore it's slightly more user-friendly, thanks to Joshuatree for mentioning it!


Thanks!


PS: it's a shame that most attachement pictures are gone or are much too small to be seen—it makes it difficult to see some pattern that you were referring to (I am sometimes unable to spot them myself on the charts).

[Snoopy]

First, 10 years is the period of my charting software. No other reason. No selection bias, cherry picking of periods, or any other conspiracy. All it needed to do was highlight the Before and After of a Bear Market.

Choosing one comparative period of any specific length will introduce a selection bias into any comparison. This is irrespective of whether you consciously chose 10 years (say), or whether the software you are working with had 10 years of data so you just used that (IOW it was an unconscious choice). There is nothing wrong with choosing 10 years as the starting point in one data series as a comparison. But 10 years is no more 'correct' that choosing 5 years or 50 years. Such alternative 'long term' comparisons would be equally valid.

The point you make that if you sold before a big dip and reinvested that money as the same share climbed out of the dunny is still valid in a mathematical sense. But I can't see a compelling reason our 'long term' fundamentalist investor would have bought FET ten years ago in the first place. Yes it paid a good steady dividend. But the fact that 95% of its lease agreements had the same tenant on the rental agreement would have raised eyebrows for our hypothetical long term 'buy and hold' investor I would have thought.

Secondly, your comments on FET affirms my entire point - that it is better to listen to the market when it gives you exit signals than to continue to hold. The market will warn you that something is not right. In this case YOU WOULD HAVE EXITED 11 MONTHS BEFORE THE **** HIT THE FAN. So you would not have been holding the stock when ABC went belly up. Unlike the Buy and Hold investor who would not have seen it coming. The market told you one year prior that something was amiss (pre-GFC onset). Even though nothing showed up in the company's fundamentals for a year.

Postscript: It turns out that it wasnt a big deal - the Australian Govt stepped in and guaranteed the leases and continued operation of the centres, and they were ultimately transferred to G8 Education. There was no interruption to FET's business - bar a few centres that G8 did not want to take over (which were subsequently leased to new operators).

I didn't follow FET at the time so I am not qualified to comment on the specifics of the fundamentals of FET at that time. The point I was making was that having 95% of your properties rented to one operator is inherently risky enough to put my kind of long term investor off ever buying FET. IOW this long term investor that your trading plan saved may not have ever existed. However, let's say they did exist and did exit missing the worst of the collapse. Would this same investor have jumped in again at the bottom given the fundamentals at the time? I would say no, as I imagine at under 15c there would be no expectation of any more dividends from FET, ever. To me FET looks like a pure traders speculative stock. No doubt some who chose to take on the huge risk of buying at the bottom were well rewarded. But this is nothing to do with any long term steady return mentality.

Nevertheless, it is good for shareholders that FET was finally was rescued.

SNOOPY

[percy]

Yay Percy, your two long years in the wilderness may finally be over
(shame we are in a crappy market though, which might put the brakes on again).

In the wilderness,no.
More like being at peace.At peace with the world,the markets and myself,with the knowledge I have invested in quality.
"Buy the best,and you get the best results",it really works..
Sometimes it takes the market time to catch up,but it does.!

[percy]

You are very zen Percy. But the fact still remains, having your money invested for over two years in a stock that is rangebound is an opportunity cost. If you cant find anything better to buy in that period then fair enough, hold on to it, but if it means that you have limited capital to invest in shares that have doubled/tripled/quadrupled in that time, you have not maximised your profit potential. I focus more on opportunity cost than future rebounds - I like my money to be working as hard as possible all the time, not just in little spurts now and then.

Bit like being employed,unemployed,part-time work,contract work,no work.
I am happy that EBOS has worked "all the time "for me over the past 25 years,and have laid the solid foundations for the next 25 years.

[Beagle]

I wonder how well you would have done in Apple for the last 25 years Percy ? I think KW has made a great point. Yes EBOS has finally broken out of being range bound and is up 15% on where it was 2 years ago but there's been a vast array of stocks that have done much better than 15% in the last 2 years. I think its easy to get emotionally attached to stocks that have done really well for you in the past and what we have here is a fine example of exactly that.