Forum Archive Index - July 2001

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Grant,

>
> 
>What I meant was:
>a)  Obviously charts can't predict the future
> BUT
>b)  They are useful in making informed trading decisions e.g. Once a
>stock has passed the test according to Fundamental Analysis such as
>TLS appears to have in your excellent work in FIG THEN c)  Observe
>Trends and Support Levels to avoid buying a stock that is still in
>the process of falling d)  Wait for the start of an uptrend and thus
>lessen the likelihood of making an initial paper loss
> 
> Nothing's guaranteed in this game, but the more tools in your
> arsenal the better.
>
>



OK, that sounds like a more pragmatic interpretation of what Phaedrus 
posted.



> 
> Ring fencing your failures, and only counting the shares that you
> have traded successfully does not constitute a successful trading
> system.
> 
> I'm well aware of that, which is why I want to look at some sort of
> stop-loss system. The losses on shares that have so far been
> failures, are mostly due to lack of a stop-loss system.
>


I wouldn't quite phrase it like that!  Sure a stop loss system may 
have saved some of your paper losses from the peak that you 
hypothetically sold at.   But I suspect that the losses on shares 
like TLS were the result of the market reacting to changed profit 
outlooks.   Frankly, I doubt if the chairman of Telstra has ever 
heard of you or your lack of a stop loss system.   And I doubt if 
Australian Insitutional shareholders will be crossing the Tasman 
looking for you as the person to sue because 'you caused the share 
price fall'.



> 
> Obviously, there are some times stocks fall so suddenly on bad news,
> that only an automated stop-loss system would save you (e.g. the
> recent profit warning from TLS).  I'm not sure I want to commit to
> that just yet. But there are others e.g. Frucor which gave some
> warning before the recent drastic fall. 
> 



I disagree.  The Frucor price gave some warning before the up trend 
ended, yes.   You know with hindsight that the price plunged 
afterwards.  But if the result, as announced, had been much better 
than expected, a new *up* trend might have started instead.   You 
would have jumped out of Frucor when the trend changed, and sat on 
the sidelines waiting for the new up trend to be confirmed, thus 
incurring two lots of brokerage *and* missing out on the capital gain 
that happened while the new up trend was confirmed!  There was no 
warning of any fall as such.


>
> Ahem, Telstra and Telecom NZ are *not* cyclical stocks. 
> 
> Yes, technically you're quite correct.  However, you know what I
> mean. I should have said VOLATILE.
>


There is widespread risk of misinterpretation on this forum, so I 
think it pays to be technically precise if you can be.   Actually I 
wouldn't even agree that TLS and TEL were even that volatile.   They 
certainly went through a volatile period as the tech bubble burst, 
but they haven't been nearly as volatile either before or since as a 
conservative old economy companies like Wrightson's or Fletcher 
Forest's for instance over the last two years.



>
> 
> If you look at the chart for TLS over the past 12 months, there have
> been several oscillations with a period of between 2 and 2.5 months.
>  At each of those peaks, I was in profit, yet on each of the dips I
> was in a loss situation.  So a more sensible strategy would have
> been to trade the stock, instead of buy and hold. 
> 
>

 
That depends on your objectives, and your philosophies and how much 
time you have for this game.   For me, sharemarket investment is a 
hobby, albeit a profitable one.   It may be that I could do even 
better if I put more effort into picking up trend analysis skills. 
But my impression is that trading isn't an easy way to riches.  Those 
that are successful have to work very hard at it, and keep a fairly 
close eye on their computer screen on a day to day basis.   Contrast 
this with my case, I would be quite happy going on holiday for a 
month without knowing any day to day details of what was happening 
with my investments.

If you are serious about trading you have to be much more rigorous 
with your account keeping, carefully documenting the result of each 
trade, both for your own cash flow and so that if IRD wish to 
audit you they can.   Then, of course, you will have to pay income 
tax on your trading profits which means you are tax disadvantaged 
compared with any capital gains you might happen to get as a by 
product of your being an investor for income.  These are the sort of 
factors who have to balance up should you wish to become a serious 
trader. SNOOPY




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