Long Term Investing

I am always fixated with swing trading because I do not have patience with most things in life. Whenever there is a 15% unrealised gain in a position, I will be very tempted to monetise the gain. I believe that I am in the category of “sell winners too fast, hold on to the losers”. To some extent, I truly believe that we live in a world that is filled with ‘black swans’. Hence, the bird in the hand theory matters. Swing trading provides wealth creation opportunities in the shortest possible time frame. On a serious note, one should seriously consider long term investing in order to balance out a portfolio that is filled by a combination of short-medium and long term trading / investment positions. It is usually the case that multi-baggers come from long term investing. To qualify for long term investing, one should truly look beyond an investment horizon of more than 2-3 years.

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Equity Rating Scorecard

My view on trading or investing is that it should always be discretionary to large extent. Trading or investing involves significant amount of judgement call. There should not always be one standardised single way of looking at a particular trade or investing idea.

Trading or investing should always be considered from a multi-aspect angle and shall be as dynamic as possible. In this posting, I am trying to develop an equity rating scorecard. The purpose of this scorecard is not to remove the discretion from trading or investing but to nicely link up factors of fundamental, technical, risk management and other critical factors.

It is about placing weightage on what matters when comes to investing or trading. In this scorecard, there is more weightage being anchored towards fundamentals, of which I believe that it is the fundamentals that will drive the long term value of a security. The proposed weightage is as follows: 60% on fundamentals, 30% on technical & risk management and 10% on other critical factors (e.g insider transations, analysts’ target price).

What does the final scoring mean?

This is entirely up to us and it is purely arbitrary. Strictly for illustration, I rank my scoring as follows (seriously, it is purely arbitrary):

4.5 – 5.0                Higher probability to be positive return

4.0 – 4.49              Expected to be positive return

3.5-3.99                Manageable Risk + Possibly Directionless / Breakeven

2.5-3.49                Higher probability of not positive return

<2.5                       Possibly high risk

 

Strictly for illustration – WTK Holdings

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Strictly for illustration – Comfort Gloves (from an earlier posting: see this )

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The effectiveness of the scorecard has not been assessed based on historical financial & market data. Nevertheless, it may be a good starting point in harmonising both Fundamental and Technical analysis. This Equity Rating Scorecard is a dynamic piece of document and shall be continuously refined over time.

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Technical Screening (4 Jul 2017)

Based on the recently developed multi-indicators trading systems , the key indicators & buy signals are summarised as follows:

  • Price crossover above lower Keltner Channel (20,2.25) 
  • RSI(14) crosses above 30.0 
  • RSI(14) was below 30 for the last 5 days 

Based on the above stated technical rules, the following is the results of the stocks screening (as of 4 Jul 2017):

Screening 05072017.png

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Back Testing A Simple Trading Strategy

Was backtesting a simple trading strategy using R based on the following key parameters:

  1. Selected security : Maybank (Malaysia)
  2. Time period: 1 Jan 2011 – till 23 June 2017
  3. Single technical indicator test
  4. Test 1 – Price crossover based on 50D Simple Moving Average (buy signal: buy when closing price of Maybank crosses above SMA, and sell when prices closes below SMA)
  5. Test 2 – Price crossover based on 50D Simple Moving Average (with transaction costs at 1.0%)
  6. Test 3 – Price crossover based on 200D Simple Moving Average
  7. Test 4 – Price crossover based on 200D Simple Moving Average (with transaction costs at 1.0%)
  8. Test 5 – Buy & Hold Strategy

MBB linechart.png

Note: Blue line (50 Day SMA) and pink line (200 Day SMA)

The summary of results are shown below. It shows that the Buy & Hold strategy appears to be more superior than of the 50D and 200D SMA price crossover strategies.

results

Transaction costs exacerbated the mediocre results of the two simple trading strategies 50D and 200D SMA.

Performance Graph.png

Next experiment – need to fine-tune the trading strategy (including use of multiple technical indicators), in order to outperform the Buy & Hold strategy.

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES

Earnings Band Method

Personally, I believe that it will be quite interesting to combine a technical trading system with a fundamental approach (may be we shall categorise it as the “funtech” trading methodology). In this posting, we will explore the Earnings Band Method.

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Is FBMKLCI oversold?

On 14th November 2016, the FBM KLCI declined 17.55 points or 1.1% on expectation that US President-elect Donald Trump’s expansionary fiscal plans for the US economy will lead to higher inflation and interest rates there. Higher US interest rates do not bode well for Asian markets in anticipation that investors will shift their money into US dollar-denominated assets. At 5pm, the KLCI closed at 1,616.64 points. Read More

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