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29 June 2020MOMENTUM INVESTING 2
01/07/20
Having established that the price is the sum of all perception we need some tools that will allow us to take advantage of this knowledge and not involve ourselves in the continuous news stream that is a major part of the financial markets.
So, this month try a simple technique which is the 5/20 MA method. With this simple system you buy when the target 5 day MA crosses above a 20 day MA and sell when the reverse occurs.
Again, we are not looking at news flows as we believe that (say) good news will propel prices higher and our Moving Averages will cross whereas negative news will do the opposite.
It is important in this type of trading that you address the problem of Stop Losses ie how much are you prepared to loose to give the market room to allow your trade to work.
We will deal with Stop Losses next month.
01 June 2020Momentum Investing
This is different to what we have been doing up until now and it is worth considering for at least a part of your portfolio. Basically, you ignore all the traditional methods of placing valuations on anything and accept that the price is the collective representation of all of the known information that is available to everyone. So, the price is your starting point.
Put simply, once the price has been established you need to develop skills to enable you to say whether or not the price is likely to go up or down. A fairly crude method is to use a 200 day moving average and say that if the price is above the average you can buy it and if it is below the average you would sell it. This approach can be refined by using one or more of the many technical indicators available to develop a skill set that will enable you to follow this approach profitably. The is not a “buy and leave” strategy as you have to keep an eye on it in case the reasons why you made the investment are no longer present.
01 May 2020Alternative Investment Methods
01/05/20
We have concentrated thus far on dealing with investing in value shares for the long term portfolio. However, the last few years have highlighted how patient you have to be to do this. We have been in cash for the most part of this time as finding any company to invest in on a value basis has proved almost impossible. Now that the inevitable has occurred with the current market collapse we have been able to load our portfolio with high quality companies that we were being offered at prices representing great value. We looked at the floatation of Aston Martin and compared the (much higher) valuation being placed on the company with that of Ferrari, and wondered if that could possibly represent good value. You only need to look at the Aston Martin share price since then to get your answer.
There is another way of investing which has nothing to do with valuation and that is known (among other terms) as “Momentum Investing”. This is where you ignore valuations (in some of the available markets (currencies?) it is almost impossible to put a value on it anyway) and simply look at the price. If the price is going up you buy it, and if the price is going down you sell it. Sounds simple but like anything else it is a skill that needs to be learned. However, as with value investing this method has brought huge fortunes to those who have learned how to do it. Over the next few months we will take an in depth look at what is required in order that investing your funds in this manner may be profitable for you.