Using TA to time entries and exits

[kiwichick]

I think this is the most valuable thread on Sharetrader. I got caught up in the hype over AIR and didn't sell when I should have due to focusing on the fundamentals and expected dividend (and getting caught up in all the rhetoric from the cheerleaders over on the AIR thread). Lesson learned. Still haven't sold - don't intend to now. Will just wait it out and chalk this all up to experience.

[Hoop]

XXXX asked be a simple question of where TA buy points are. He admits TA is not his strong suit. Instead of me saying there's none yet, I thought I better qualify the answer with a quick education but it sadily it turned into a rambling Sunday TA rant...Sorry XXXX

Hi XXX
First of all..

TA is a graphic portrayal of group behavior...Question: does your personal assessment of AIR line up with what TA is saying...It should!!! it tells you the bears (some are big money bears) are beating the bulls atm

There is a sense that the bulls are trying to find (mentally) a bottom and they sense that it is at 2.35 because all other supports so far have failed..the steep drop can't last forever and there's this good FA/ poor shareprice conflict which seems "irrational".. Also there are investors riding out this storm..they are suffering emotional pain which they didn't expect and some are looking to quit out but at a higher price than now (bear) some will create a mirage of happiness through a lesser overall loss by averaging down and relying on hope to change the red ink to blue ink (bull)

On the bear side we have.
1...Competition heats up (Cyclical theory says this event occurs near the top of all cyclical cycles)
2...VAH doesn't help AIR's balance sheet
3...Investor sense of disbelief towards Management Hype
4...$3 share price was too high (using valuation methods specifically for cyclical stocks)..Share price should be $x

What is the $x price..Answer when bulls behaviour (feelings) out number the bear behaviour (feelings) and trepidation outnumbers intrepidation

Chartwise.. the bull/bear line shows where feelings may reverse....If the price bounces off upwards the Stock stays in a Bull Market cycle (higher highs/higher lows) a bull market correction has played out and a bottom is set in place...
If the price falls below the bull bear line it means the bull market cycle may be over ..if the price falls to the next support $2.25 (an old support 2yrs) and bounces up (respects) this may not be a bottom as AIR could be in bear market cycle (lower highs/lower lows) and that support respect maybe temporary

Isn't AIR already in a Bear Market Cycle ??
Conventional investing says Yes>20%...TA Charts says no not yet as the Bull/bear line is at .. $2.35.

There are other chartable ways of assessing investors feelings during sudden falls..Fibonacci Retracements are very spooky ..38.2% and 61.8% are the most known areas.. (there are other points as the price falls to greater extremes)..
AIR price 2.36 at the moment is ..bang on 38.2% (see Baa Baa's post on the AIR thread).

There are other TA indicators that gauge investor behavoural changes....The quicker more sensitive indicators are oscillators, MACD and Stochastics tend to be the favourites among investors using basic simple TA or should I say misusing...the misuse involves using only indicators that agree to reinforce their "set in stone" belief such as when to get in/out quickly...e.g sensing a bottom...These people then blame TA if their beliefs turn to custard..


Overall..it depends on the masses and especially those with the most money that rule which way the market goes


Question:..So where's the bottom using TA?....Answer: Don't Know...Why: Because TA can't predict the future..

And neither can FA or anyone else!!!..many may say the bottom is in at $2.35 but it is an opinion not fact (yet).

TA is an analysis of historic data..Observation has noticed certain price areas have a greater chance of reversion such as Primary trend lines (already failed) major Support areas (bull/bear line at $2.35) and Fib Ret at 38.2% ($2.35) and 61.8%. However favourable TA areas do and often fail to revert (logic.. for a 61.8% area to be reached a 38.2% area has to have failed)..TAer's can analyse historic data predict and at best create a probability of an happening.

I'm not sure what AIR's $2.35 probability of being the bottom is (not enough NZX data), but this area has a higher probability than other area's in proximity on the chart, as it has the 38.2% FIB RETand major support (bull/bear) line in it's favour..

Would I invest now?...Answer..Me personally Hell No!!!...I'm a wimp when it comes to Cyclicals behaving badly and also my TA discipline forbids me...It depends on your risk tolerance and bank balance..Yes AIR is at a support area so buying v risk is more favourable than near a resistance area and dabbling is OK but risking your house is NOT OK!!...Cyclicals as I've mentioned so often before are scary stocks, they are volatile..their falls hurt portfolios...Preempting a bottom is risky business therefore the rewards are higher.. Cyclical stocks in their volatile phase have very high risks..Is AIR's rewards high enough at the $2.35 level ..In market theory if nearly everyone says yes then it will be a market bottom (for now?)...

IF you can't help yourself and buy in at $2.35 then apply tight stops...remember volatility may not be your friend, even your tight stops may fail to get you back out in time..

For me Investing 101 applies.. Don't buy into a downtrend.. wait for buy signals

[Mista_Trix]

This makes me really sad.

This thread was by far the most useful thing I've found in my investing career and it would appear all of KWs posts are gone bar the first.

Did anyone happen to grab a copy of this thread while her opinions were still around?
I'd greatly appreciate a it. I've just taken a read through of the entire thread and its substantially smaller. There are a few that have been immortalised as quotes in other posts, but most are gone

Any help greatly appreciated.

[kiora]

This makes me really sad.

This thread was by far the most useful thing I've found in my investing career and it would appear all of KWs posts are gone bar the first.

Did anyone happen to grab a copy of this thread while her opinions were still around?
I'd greatly appreciate a it. I've just taken a read through of the entire thread and its substantially smaller. There are a few that have been immortalised as quotes in other posts, but most are gone

Any help greatly appreciated.

Here is one I copied Mr TX from KW.I agree ,sorely missed
KW
I keep reiterating that TA does not predict anything nor does it guarantee anything. So yes, not everything works out according to plan. Lately I've been buying stocks in threes - and usually one of them turns out to be a dud, and gets sold within a few months of being purchased. Last couple to have turned out like that has been FMG and SHL.

Likewise, not all stocks that get sold due to a breach of the 200 day MA carry on into a downtrend, some recover quite nicely. Like CAJ, MTU and MFG. But its probably an 80-20 strike rate with the sell signals, the vast majority turn out to be timely exits.

I use TA primarily as a risk management tool rather than a trading tool. In other words, I'd rather be out of a stock and lose the first upward movement, than be in a stock that fails to form an uptrend and results in lost capital. Likewise, better to have sold a stock and locked in profits, than to run the risk of a downtrend forming and losing it all. Its better to make a small profit often, than to lose a lot of money trying to make a big profit. I think once you accept that that strategy works, you don't worry so much about missing out on a few percentage returns in the early days in return for many months or years of being in a profitable investment.

[kiora]

This makes me really sad.

This thread was by far the most useful thing I've found in my investing career and it would appear all of KWs posts are gone bar the first.

Did anyone happen to grab a copy of this thread while her opinions were still around?
I'd greatly appreciate a it. I've just taken a read through of the entire thread and its substantially smaller. There are a few that have been immortalised as quotes in other posts, but most are gone

Any help greatly appreciated.

Another one from KW or Hoop ?
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.
Attachment 4520

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

[Joshuatree]

I find T/A fantastic as an invaluable tool for timing in or out of a investment along with F/A. Its all about risk management first and foremost.
Im prepared to take some questions for a limited period and forward them to KW and share the reply if anyone is int;PM me.

[heisenberg]

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

Does anyone still use CGVI?
When converting a CGVI to an optimal buy price, what exactly does "ABS" stand for in the calculation and how can it be found?

Here is the calculation here:
•OPB = ( EPSc +DPSc ) /(ABS ( 25 -(( EPSc - DPSc) / NTA$)) )

[heisenberg]

https://en.wikipedia.org/wiki/Absolute_value

Thank you!

[black knat]

Any TA views on OHE? Broke out of a serious downtrend earlier this year - stock seem to have a mind of its own with little to do with fundamentals/ prospects. Am holding.

[heisenberg]

Any TA views on OHE? Broke out of a serious downtrend earlier this year - stock seem to have a mind of its own with little to do with fundamentals/ prospects. Am holding.

Hold.
Negative EPS, negative PE ratio, DPS zero - I wouldn't be touching OHE right now. Short term players may have a different view if they are hoping to make a quick buck.

But seeing as you've already ridden the trough out might as well stay put. If the 50 day moving average falls below the 200 DMA I'd reassess, guess it depends on your own investment style. In saying all of this I don't hold any OHE and haven't looking into the company much at all other than the base figures.