Ask Dave – March 2010

Sometimes we need to be reminded - in the words of someone wiser than myself – that “The only silly question is the one that goes unasked”. 

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Greetings Dave,

I am new to trading stocks and also new to your site.  I use CommSec to trade. CommSec has some handy info available but it is really still a guessing game for me as my experience is limited.

Have just started your trading and investment course, though this will take me some time to understand. Is there a course for dummies???  I’m not sure where I should be starting the trend line from. I believe a crossover is the end?  Is there an easier way for you to explain this?

I own BSL (@3.03 in August 09) and MQG (@26.45 in March 09).  Do you have an opinion on these 2 stocks?  I also have smaller holdings in ANZ, CPU, GPT for a shorter period. Am thinking of selling off something to service loan repayments. Do you have a suggestion as to what to sell?

By the way, this is by far the best site I have come across and would recommend it to anyone.  Thank you for your efforts.

Michael J.

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Hi Michael,

Thanks for stopping by!  I know what you mean – finding points to buy and sell when you first start out can be a daunting task.  But guess what – even those who’ve been doing it for many years still get it wrong.  Being wrong is truly part of the game.  You have asked some great questions, so first:

1:   I will look into making a course that is easier to understand.  Thanks for the idea!

2:   With trend lines, you can actually have a down trend and an up trend line at the same time.  It does take practice, so keep at it - you will get it!  Start from the lowest low (trough) and go to the highest trough for an uptrend.  The reverse for a down trend is: start from the highest high (peak) and go to the lowest peak.  And don’t pass through any peaks or troughs in between if you can help it. 

Here are some pics, because I find a picture says a thousand words:

 

 

 

 

 

 

 

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If you are a medium term trader use a weekly chart, or a short term trader use a daily chart.  There are different ways to use them – you can use either a crossover as a signal, or a crossover combined with something else like a close above the previous peak or even a Dow Theory entry.  Every stock has a different personality – it is up to you as a trader to discover that personality through back-testing.

3:   As for MQG and BSL – as I am not licensed (yet) I cannot give advice.  I respect the powers that be – but I CAN tell you that with MQG you would see a Dow Theory Exit signal with a price close below $44.85, and that using Dow Theory in this way you would have won 81% of the time over the last 14 years.  

With BSL using Dow Theory (but waiting for 3 months after the low after a downtrend to enter), you would have won 83% of the time over the last 8 years.  BSL had one of these exits at $2.60 in February 2010, but price has since recovered.  Nevertheless, you could set your stop loss at $2.60 if you wanted to draw a line in the sand where you got out.

 

 

 

 

 

 

 

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GPT is the only other one close to a Dow Theory exit signal, at a close below 54c.

Just as a side note – it is always good to know your exit price before (or when) you buy.  I think Comsec does a percentage stop loss (i.e. you can set it automatically at 10% or 15% or whatever you are comforable with) – other platforms let you set the exact dollar value you want, and some (like Macquarie Prime) let you guarantee that stop loss, for a price of course.  Tally up your total risk (where the stock is now minus where your stop loss is, times however many shares you have).  If it looks too much or is stopping you from sleeping at night, it could be a good idea to lighten up your positions.  At least that’s how I do it – others may do it differently.

Hope this helps, and happy trending!

Dave McLachlan

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March 29, 2010   Posted in: Ask Dave

2 Responses

  1. maplestory nx generator - April 22, 2010

    Awesome work on this website. Enjoying it a lot haha.

    Favorited! :P

  2. Jamey Dibrino - December 1, 2010

    Kudos for the great article. I am glad I have taken the time to learn this.

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