Forum Archive Index - March 2002

[Phaedrus <Phaedrus@techemail.com>]

Ruth,
      The story of Richard Dennis and the Turtle Traders is an interesting one. 
I had to laugh at your reference to the TurtleTrader website as being "slightly 
more rational than some". TA, like many other endeavours, does indeed have a 
lunatic fringe, as it seems you have discovered.    

 There are many issues involved with low volume stocks. At worst, it is not 
even possible to use Japanese candlesticks effectively on very lightly traded 
stocks. I would not consider trading these stocks at all.

 For many of the small to midrange NZ stocks, the problem is not the lowish 
volume per se, but more the often very high day to day random variations that 
occur. For this reason, I do not normally use volume based indicators on most 
NZ stocks. This would exclude indicators like Money Flow Index, On Balance 
Volume, Price Volume Trend etc. I would still refer to the usual volume bar 
graph though. 

 Another issue is the ability to buy or sell a reasonable parcel of shares 
without shifting the market. My general rule of thumb is this. If my trade 
would comprise more than 5% of the average days turnover, I will not trade that 
stock.

 I would think that the main reason managed funds are unable to trade out of 
positions easily would be the large relative size of their holdings in a given 
company, rather than a simple lack of liquidity. This would be just one of many 
reasons for their poor performance.

 While other markets are much larger than NZ, they still have some stocks that 
are too lightly traded to use TA very confidently, so this is a stock issue, 
rather than a market issue.

 One final point is the time taken to fill an order. Some people are happy to 
wait, perhaps even for weeks to buy or sell a stock at their nominated price. I 
am not. If I cannot complete my order more or less straight away, the stock is 
too lightly traded for me, and I will avoid it. 

 None of the above would qualify as Universal Truth. These are merely my 
current views, and in matters of this nature almost everyone would have a 
different opinion, and their own set of rules and procedures tailored to their 
individual situation and preferred approach.

      Regards,
               Phaedrus.

 

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