Always try to invest with the trend. Doing so is like paddling a boat downstream. Making progress is easy. It is very difficult to make progress when you paddle upstream. How do you determine what the trend is? If the 200-day moving average of the market index is rising, then the general trend is up. Does that mean the short-seller cannot sell short? It does not mean that at all. We do not define the trend by using only one measurement. For the person who buys and holds his positions for two years, a rising 200-day moving average is favorable. However, for a swing trader who holds his positions from one day to a few weeks, the direction of the 200-day moving average will likely be irrelevant. That is why the trend indicator must fit the time-horizon (the intended holding period) of the investor.
If you intend to hold your stock for a week or so, then the direction of the 20-day moving average will be important to you. It will be of little or no importance to the individual who intends to keep his positions for two years. If you intend to hold for a month or more, then the direction of the 50-day moving average will be very important to you. However, there is some overlap here. The direction of the 50-day moving average can also be important to the swing trader. If the swing trader sees that both the 20-day and the 50-day moving averages are rising, he will have more confidence than if the 20-day moving average is rising but the 50-day moving average is still declining. Under the latter condition, he might want to have tighter stops and to sell more quickly at the first sign of weakness. If the two moving averages are rising, he might be a little more patient with his positions.
We have said that the trader should invest with the trend, but there is more than one trend to consider. There is the trend of the stock and the trend of the market. Assume a person is a relatively long-term swing trader who likes to capture moves that last about a month. It is possible for a stock to have a strongly rising 50-day moving average while the market index has a declining 50-day moving average. Of course it is better if both are moving in the same direction as the trade you wish to make. However, there are times when an individual stock will persist in a strong up-trend against the market's direction. When a downward trending market has a rally, stocks with persistent strength will tend to rally as well. When the market has its next plunge, the stock in a persistently strong rising trend will tend to decline to its rising trendline. When it reaches that trendline, the savvy trader will monitor its behavior. If the stock shows signs of rebounding off that trendline, the trader will buy. In doing so, he is investing with the trend of the stock even though it is against the trend of the market. The fact that the stock is in a persistently strong rising trend is what makes the trade sensible. The author considers a stock's return to its rapidly rising moving average to be one of his favorite "setup" patterns.
Our own traders at stockdisciplines.com try to monitor the general tone or "health" of the market by reviewing a series of indicators updated daily on our site. However, there are useful observations the reader can make without referring to indicators. For example, if the market goes up on good news, the market is behaving well. If it goes down on good news, there is probably no trend in your favor, and bullish investments involve much greater risk. The point is that it is always a good idea to invest with the trend that is suitable for your investment time-horizon. It helps if the market is moving in the same direction as the most appropriate trend for your intended stock investment. In other words, if you are a short- to intermediate-term trader, and the stock you want to invest in has a declining 30-day moving average, you should take that as a danger signal. If the 30-day moving average is rising, that would be a good sign. If the 30-day moving average of the market is also rising, that would be even better.
Tuesday, August 22, 2017
Selling Stocks That Don't Rise Can Get Bigger Gains
Selling stocks that have declined and stocks that do not rise as expected accomplishes several things. It frees up resources that can be used to buy other stocks more likely to rise in value. It enables your rising stocks to impact your portfolio more fully because declining stocks that would dilute their performance are removed. Finally, it keeps your portfolio more fully committed to rising stocks more of the time. A very simplistic and purely hypothetical mechanical discipline can be used to illustrate the meaning of this article's title. Let's suppose that when we invest the outcome is random. Half the time the stock will decline and half the time the stock will rise. Assume also a randomness in the magnitude of stock moves. Finally, assume we have a rule that any stock we buy will be sold if it drops 8% below the highest price attained since purchase.
Even if half the stocks we buy go down and half go up, our system will make money because it will never allow any loss to exceed 8%, and it will leave a rising stock alone until it drops 8% below the highest price it attains after purchase. Thus, if the stock makes a gain of 60% before it declines the allowed limit of 8%, we will lock in a gain of 52%. Profits on a given position have no necessary limits, but a loss can never exceed 8%. In other words, the total gains would exceed the total losses even if stocks moved around in purely random patterns. The discipline used can be even more important to profitability than the ability to be a good stock picker.
Selling stocks that "misbehave" frees up assets that the investor can re-deploy to stocks with greater profit-making potential. It is necessary to control the expenses of the investment enterprise just as an individual would control them in any other business endeavor. The small losses are simply the necessary overhead of running a profitable investment enterprise. Let's use a merchandising metaphor. The key concept here is inventory control. It is important for a merchant to get rid of inventory that doesn't move (these items are a drain on resources) in order to free up shelf-space and to have more resources (money) available to buy stock that will move and generate profits. Smart merchants will often sell non-moving inventory at a discount and sometimes at a loss in order to free up resources and shelf space. The merchant considers the loss to be simply one of the costs of doing business (like the costs of electricity, gas, water, rent, salaries, and taxes).
The volatility of the market makes it necessary to be nimble in order to obtain optimum results. Just because taking a loss is not "absolutely necessary" does not mean that holding on to a poor performer to avoid taking the loss is the optimum course of action. When there is a loss shortly after a purchase, it is generally unexpected. That means something has just occurred that has made the stock less desirable. The greater the decline, the greater the probability that something negative has just happened (a geo-political event, FDA decision, court ruling, comment by an officer of the company, achievement of a competitor, or whatever).
Our tests and the experience of our own traders at stockdisciplines.com show that in volatile markets performance is enhanced when stocks are sold while their declines are still small (if their decline is beyond the probability envelope of what is expected for those stocks given their recent price-action and current support levels). Such actions will not always be the most profitable for a particular trade, but we know they will generally produce better results over time. Even though it is not always "absolutely necessary" to sell when a stock falls (perhaps we believe the position will recover in time), we know that better long-term results can be achieved if we do sell and re-deploy the assets.
To maintain a portfolio of winners, you have to keep getting rid of the losers and non-performers. It is like pulling the weeds out of a garden so they don't choke the growth of desirable plants. Here is the key point: "It is the percentage of time that most of a portfolio is invested in rising stocks that determines how good performance will be." If losers are left in the portfolio where they can counterbalance the gains of the winners, performance will suffer. The smart trader will want to get rid of the losers so the winners can lift the portfolio. Most people cannot sit in front of their computer all the time the market is open. That's why it is important to have a good stop-loss strategy. We believe that stops should be ratcheted up as a stock rises. For example, a person could adjust stop orders in the afternoon after the market has closed, in the evening before going to bed, or in the morning before the market opens. If these adjustments cannot be made every day, they should be made at least once a week. By placing a stop order to sell with the broker, an individual doesn't have to stay "glued" to the screen monitoring stocks. Instead, he or she can forget about the market and take care of other business. Then, if the stock is sold, the sale will be according to a plan carefully conceived in calmer moments.
Even if half the stocks we buy go down and half go up, our system will make money because it will never allow any loss to exceed 8%, and it will leave a rising stock alone until it drops 8% below the highest price it attains after purchase. Thus, if the stock makes a gain of 60% before it declines the allowed limit of 8%, we will lock in a gain of 52%. Profits on a given position have no necessary limits, but a loss can never exceed 8%. In other words, the total gains would exceed the total losses even if stocks moved around in purely random patterns. The discipline used can be even more important to profitability than the ability to be a good stock picker.
Selling stocks that "misbehave" frees up assets that the investor can re-deploy to stocks with greater profit-making potential. It is necessary to control the expenses of the investment enterprise just as an individual would control them in any other business endeavor. The small losses are simply the necessary overhead of running a profitable investment enterprise. Let's use a merchandising metaphor. The key concept here is inventory control. It is important for a merchant to get rid of inventory that doesn't move (these items are a drain on resources) in order to free up shelf-space and to have more resources (money) available to buy stock that will move and generate profits. Smart merchants will often sell non-moving inventory at a discount and sometimes at a loss in order to free up resources and shelf space. The merchant considers the loss to be simply one of the costs of doing business (like the costs of electricity, gas, water, rent, salaries, and taxes).
The volatility of the market makes it necessary to be nimble in order to obtain optimum results. Just because taking a loss is not "absolutely necessary" does not mean that holding on to a poor performer to avoid taking the loss is the optimum course of action. When there is a loss shortly after a purchase, it is generally unexpected. That means something has just occurred that has made the stock less desirable. The greater the decline, the greater the probability that something negative has just happened (a geo-political event, FDA decision, court ruling, comment by an officer of the company, achievement of a competitor, or whatever).
Our tests and the experience of our own traders at stockdisciplines.com show that in volatile markets performance is enhanced when stocks are sold while their declines are still small (if their decline is beyond the probability envelope of what is expected for those stocks given their recent price-action and current support levels). Such actions will not always be the most profitable for a particular trade, but we know they will generally produce better results over time. Even though it is not always "absolutely necessary" to sell when a stock falls (perhaps we believe the position will recover in time), we know that better long-term results can be achieved if we do sell and re-deploy the assets.
To maintain a portfolio of winners, you have to keep getting rid of the losers and non-performers. It is like pulling the weeds out of a garden so they don't choke the growth of desirable plants. Here is the key point: "It is the percentage of time that most of a portfolio is invested in rising stocks that determines how good performance will be." If losers are left in the portfolio where they can counterbalance the gains of the winners, performance will suffer. The smart trader will want to get rid of the losers so the winners can lift the portfolio. Most people cannot sit in front of their computer all the time the market is open. That's why it is important to have a good stop-loss strategy. We believe that stops should be ratcheted up as a stock rises. For example, a person could adjust stop orders in the afternoon after the market has closed, in the evening before going to bed, or in the morning before the market opens. If these adjustments cannot be made every day, they should be made at least once a week. By placing a stop order to sell with the broker, an individual doesn't have to stay "glued" to the screen monitoring stocks. Instead, he or she can forget about the market and take care of other business. Then, if the stock is sold, the sale will be according to a plan carefully conceived in calmer moments.
BitCoin Price - History and Future Trends
When BitCoins were first released in early 2009, there was no price associated with BitCoins since there were no existing currencies that could be directly exchanged for them. A number of early adopters began getting involved in BitCoins since they saw its potential as an alternative medium of exchange.
Bitcoin Price – The Ups and Downs
The BitCoin community grew and the BitCoin price in January 2011 was at $0.30. Its value was mainly based against the U.S dollar and it still is (as of this writing). After a number of ups and downs, the BitCoin price landed at around $4.25 by the end of 2011.
Bitcoins (like paper currency) will always go through trends of volatility. Unlike paper currency however, bitcoins have two advantages:
(1) Only a limited amount of BitCoins will ever be on the World BitCoin Exchange (BlockChain). This safety net ensures that BitCoin traders will never run into a case of "runaway inflation". Multiple countries around the world are currently suffering from financial mismanagement of their paper currencies and citizens are turning to alternative currencies – like BitCoins.
(2) BitCoin trading is decentralized – all computers from around the world (including mobile devices) can connect to the exchange network. This decentralized nature ensures that no one individual, corporation, government or bank can have the ability to easily manipulate the BitCoin price. But that does not stop them from trying.
BitCoin Price – Wild Market Speculators
In 2013, the popularity of BitCoins grew even further. Wild speculators began jumping in and out of the market. From January to April, the BitCoin price shot up from $13.25 to $266.00. A price correction kicked in and pulled the price down to $50.00 a week later.
The United States Senate needed to have a "hearing" about BitCoins that year (because when you cannot control something that is not meant to be controlled by any government, having a so-called "hearing" is really important – note the sarcasm).
The BitCoin price peaked at around $1,240.00, but finally settled down to $800.00 by the end of 2013. It was pretty obvious that wild speculators were trying to treat BitCoins with the same wild abandon as in the "paper currency stock markets."
The year of 2014 was the year of "market correction" where the price trend generally went down until the BitCoin price was about $325.00. This year was also very important because it was the year of the "BitCoin Venture Capitalists". Over $300 million dollars of venture capital investments were used to expand and enhance the Bitcoin network infrastructure.
This expanded and enhanced infrastructure is what allows people from anywhere in the world to easily get a BitCoin wallet and begin trading in BitCoins – without having to be a "technology wizard".
BitCoin Price – Stable Investing and Beyond
Venture Capitalists are adding more investment capital into the BitCoin infrastructure and BitCoins are now recognized as a true and viable alternative currency in many countries around the world. More and more online companies are accepting BitCoins as a form of payment.
The worldwide acceptance of BitCoins is very important to the stability of the BitCoin price. If you have not invested in BitCoins as yet, then there is no better time than now to do so. The BitCoin currency has indeed proven itself to be a viable alternative medium of exchange.
Get the latest BitCoin Price, News, Opinion Articles, Insights and more from PTC BitCoin Success Blog - http://www.ptcsuccessblog.com
Bitcoin Price – The Ups and Downs
The BitCoin community grew and the BitCoin price in January 2011 was at $0.30. Its value was mainly based against the U.S dollar and it still is (as of this writing). After a number of ups and downs, the BitCoin price landed at around $4.25 by the end of 2011.
Bitcoins (like paper currency) will always go through trends of volatility. Unlike paper currency however, bitcoins have two advantages:
(1) Only a limited amount of BitCoins will ever be on the World BitCoin Exchange (BlockChain). This safety net ensures that BitCoin traders will never run into a case of "runaway inflation". Multiple countries around the world are currently suffering from financial mismanagement of their paper currencies and citizens are turning to alternative currencies – like BitCoins.
(2) BitCoin trading is decentralized – all computers from around the world (including mobile devices) can connect to the exchange network. This decentralized nature ensures that no one individual, corporation, government or bank can have the ability to easily manipulate the BitCoin price. But that does not stop them from trying.
BitCoin Price – Wild Market Speculators
In 2013, the popularity of BitCoins grew even further. Wild speculators began jumping in and out of the market. From January to April, the BitCoin price shot up from $13.25 to $266.00. A price correction kicked in and pulled the price down to $50.00 a week later.
The United States Senate needed to have a "hearing" about BitCoins that year (because when you cannot control something that is not meant to be controlled by any government, having a so-called "hearing" is really important – note the sarcasm).
The BitCoin price peaked at around $1,240.00, but finally settled down to $800.00 by the end of 2013. It was pretty obvious that wild speculators were trying to treat BitCoins with the same wild abandon as in the "paper currency stock markets."
The year of 2014 was the year of "market correction" where the price trend generally went down until the BitCoin price was about $325.00. This year was also very important because it was the year of the "BitCoin Venture Capitalists". Over $300 million dollars of venture capital investments were used to expand and enhance the Bitcoin network infrastructure.
This expanded and enhanced infrastructure is what allows people from anywhere in the world to easily get a BitCoin wallet and begin trading in BitCoins – without having to be a "technology wizard".
BitCoin Price – Stable Investing and Beyond
Venture Capitalists are adding more investment capital into the BitCoin infrastructure and BitCoins are now recognized as a true and viable alternative currency in many countries around the world. More and more online companies are accepting BitCoins as a form of payment.
The worldwide acceptance of BitCoins is very important to the stability of the BitCoin price. If you have not invested in BitCoins as yet, then there is no better time than now to do so. The BitCoin currency has indeed proven itself to be a viable alternative medium of exchange.
Get the latest BitCoin Price, News, Opinion Articles, Insights and more from PTC BitCoin Success Blog - http://www.ptcsuccessblog.com
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