Sunday, 22 February 2015
Where did all the content go?
I've been asked a few times where most of my old posts have gone. The answer is that I have temporarily taken them down to review and edit them. Don't worry they will be back up soon!
Sunday, 30 November 2014
ASX Game Round-up
As I'm sure a lot of my readers are aware the ASX virtual trading game as just come to a close. I hope it was both successful and illuminating regarding the strengths and weaknesses of your trading strategy. I would like to post a special congratulations to Becky, the winner of the game increasing her portfolio to $130,000 from $50,000 a 260% increase!
Since reminding my readers about the commencement of the game, I have been asked several times for an update of how my own trading is going. I have held off from announcing my results, knowing that the stockmarket is a volitile beast and could turn against me at anytime.
As the game has now finished I feel as though I should let me readers know my results. However, I would first like to describe the types of trading and investing I was partaking in. I had three ASX accounts and was trading with all of them simultaneously.
The first was a purely technical trend following/ momentum style. The second was purely fundamental, and the third was a mixture of technical indicators and fundamental analysis.
The results are as follows:
Purely Technical: $48,793
Purely Fundamental: $50,622
Mixture: $54,262
Now before you jump to any conclusions, I would just like to say this is not a reflection on the styles of analysis. The type of technical trading I was pursuing was more suited to a longer timeframe and thus only really incurred costs rather than profit (we all make mistakes but with the capital is virtual it doesn't matter much!). The purely fundamental trading was also limited to certain industries as gaining an extensive knowledge across the full 250+ companies would have been impossible. Due to this I missed potential opportunities that could have been very profitable if they had been identified earlier.
Finally, the mixture of technical and fundamental analysis was wildly successful. This account was ranked inside the top 200 for a significant period of the game. The final rank was 288 out of over 17000 participants. It achieved an 8.5% return in only a few months, I think most people would be happy with that kind of return!
The takeaway from this post is that you have to try many different trading styles to find one that works for you. However, I do feel as though I have just been very egotistical and written about my success.
Let me know how you went or if you have any questions as usual email me on illuminatingfinance@gmail.com
Since reminding my readers about the commencement of the game, I have been asked several times for an update of how my own trading is going. I have held off from announcing my results, knowing that the stockmarket is a volitile beast and could turn against me at anytime.
As the game has now finished I feel as though I should let me readers know my results. However, I would first like to describe the types of trading and investing I was partaking in. I had three ASX accounts and was trading with all of them simultaneously.
The first was a purely technical trend following/ momentum style. The second was purely fundamental, and the third was a mixture of technical indicators and fundamental analysis.
The results are as follows:
Purely Technical: $48,793
Purely Fundamental: $50,622
Mixture: $54,262
Now before you jump to any conclusions, I would just like to say this is not a reflection on the styles of analysis. The type of technical trading I was pursuing was more suited to a longer timeframe and thus only really incurred costs rather than profit (we all make mistakes but with the capital is virtual it doesn't matter much!). The purely fundamental trading was also limited to certain industries as gaining an extensive knowledge across the full 250+ companies would have been impossible. Due to this I missed potential opportunities that could have been very profitable if they had been identified earlier.
Finally, the mixture of technical and fundamental analysis was wildly successful. This account was ranked inside the top 200 for a significant period of the game. The final rank was 288 out of over 17000 participants. It achieved an 8.5% return in only a few months, I think most people would be happy with that kind of return!
The takeaway from this post is that you have to try many different trading styles to find one that works for you. However, I do feel as though I have just been very egotistical and written about my success.
Let me know how you went or if you have any questions as usual email me on illuminatingfinance@gmail.com
Sunday, 5 October 2014
Technical Analysis: Support and Resistance points
Okay, so as I expected since covering the type of analysis I have had an influx of readers who are keen to know more. I have previously covered the difference between technical and fundamental trading, for those who missed them have a read before you finish reading this post (http://illuminatingfinance.blogspot.com.au/2014/05/fundamental-trading.html and http://illuminatingfinance.blogspot.com.au/2014/05/fundamental-trading.html).
However, as the title of this post indicates I would like to go into slightly more detail on technical analysis. The basis of technical analysis comes from analysis of quantitative data and graphs. Using technical analysis we are able to pick points of support and resistance for price in the future. Support points are prices in the markets where large groups of traders buys will continue to buy the product. Resistance points are prices in the market where a large group of traders will sell the product. This would regularly be due to ideas of under or over pricing, which they intend to exploit. Often due to psychological reasons these tend to move towards round numbers. These points can be found through an examination of graphs, as seen below.
We can learn a lot from analyzing this graph with the benefit of hindsight. An example of a support point (a point that it is unlikely for the price to descend below), can be found on the line A. At the $33 point, the price hit this support point and then went back up 4 times. This could be because some traders believe that at the support point this stock is very cheap and undervalued and thus demand rises. The line B is a good demonstration of a resistance point (a point that the price is unlikely to rise above). The price hit the $35 mark twice before retracing and then breaking through. A breakout is a price rise beyond the resistance or support point. Once this occurs often new support and resistance points are established, often at the point that was broken (ie. Support becoming resistance points or vice versa).
This will just be the one part of many on this very large topic. If you have an idea on what you would like the next post to be on or would just like to contact me please email illuminatingfinance@gmail.com
However, as the title of this post indicates I would like to go into slightly more detail on technical analysis. The basis of technical analysis comes from analysis of quantitative data and graphs. Using technical analysis we are able to pick points of support and resistance for price in the future. Support points are prices in the markets where large groups of traders buys will continue to buy the product. Resistance points are prices in the market where a large group of traders will sell the product. This would regularly be due to ideas of under or over pricing, which they intend to exploit. Often due to psychological reasons these tend to move towards round numbers. These points can be found through an examination of graphs, as seen below.
We can learn a lot from analyzing this graph with the benefit of hindsight. An example of a support point (a point that it is unlikely for the price to descend below), can be found on the line A. At the $33 point, the price hit this support point and then went back up 4 times. This could be because some traders believe that at the support point this stock is very cheap and undervalued and thus demand rises. The line B is a good demonstration of a resistance point (a point that the price is unlikely to rise above). The price hit the $35 mark twice before retracing and then breaking through. A breakout is a price rise beyond the resistance or support point. Once this occurs often new support and resistance points are established, often at the point that was broken (ie. Support becoming resistance points or vice versa).
This will just be the one part of many on this very large topic. If you have an idea on what you would like the next post to be on or would just like to contact me please email illuminatingfinance@gmail.com
Review of the Market wizards
I first read this book awhile go and remember the value it had. So this week I have reread it so I can provide a review for you, the readers!
The book Market Wizards by Jack D. Schwager is a Finance classic. Everyone in the trading world seems to have read it. It is the recorded conversations that Schwager had with the most successful traders in the world in the late 1980s. He speaks with 15 traders and one psychologist about their views on trading under several different topics. He talks with most of the traders on their particular method to being successful.
However, the message that came across in the book was there is more then one successful methods to making money. Each person is different and could deal with different amounts of risk and return, and thus required different strategies. This realization allowed me to stop searching for a holy grail strategy but instead work on my own strategy. This book is very well recommended to anyone interested in finance or trading, as it is a very good starting point for further research.
Enjoy reading!
Sunday, 21 September 2014
Does it have to be a choice?
Okay since posting over the last two weeks on the main types of analysis (that you can see here: http://illuminatingfinance.blogspot.com.au/2014/05/fundamental-trading.html, and here: http://illuminatingfinance.blogspot.com.au/2014/05/technical-analysis.html), I need to clear up a question I have received a from a few concerned readers.
"I now understand the difference between technical and fundamental analysis, but I'm not sure which one to choose. Could you help?"
Okay let me start by saying, it doesn't have to be a choice. There are a many traders and investors who are extremely successful who use both fundamental and technical analysis. They design their trading system around the complementing elements each type of analysis provides. An example of this could be using technical analysis to indicate possible buy movements and then using fundamental analysis to decide whether to pull the trigger.
Now before the next question is asked, no you don't have to use a combination of both types of analysis. As a trader or investor you have to decide how you want to design your system. You may have more of a focus on one type of analysis, an equal mix, or even completely reliant on style. It is up to you!
Good luck!
Make sure you to let me know if anything I've said has helped you! Just email illuminatingfinance@gmail.com
Sunday, 7 September 2014
Technical Analysis
Following from last week's post on Fundamental analysis (that you can see here: http://illuminatingfinance.blogspot.com.au/2014/05/fundamental-trading.html), I thought this week I would explain to the other type of analysis referred to as technical analysis.
Technical analysis uses an examination of historical data to form predictions for future price action. These are most commonly an analysis of price and volume. Traders who utilize technical analysis to make trading decisions often run very systematic trading strategies. This reduces emotional involvement to almost zero, instead using quantitative data to indicate when to enter or exit the market. The graph below shows a trend which a technical trader may have picked up using his system.
Technical analysis uses an examination of historical data to form predictions for future price action. These are most commonly an analysis of price and volume. Traders who utilize technical analysis to make trading decisions often run very systematic trading strategies. This reduces emotional involvement to almost zero, instead using quantitative data to indicate when to enter or exit the market. The graph below shows a trend which a technical trader may have picked up using his system.
Sunday, 24 August 2014
Fundamental Anlaysis
This week's post was inspired by another question from an avid reader.
"What are people referring to when they talk about Fundamental analysis?"
Fundamental analysis uses information available about companies, industries and economies in an attempt to understand and predict price action. The more information a fundamental trader has about the trade the more informed they feel. Thus they seek to fully understand the market in which they are investing before they commit their money. The specific data on the companies can be found in the annual financial reports, which they release to market. For commodities, an examination of more macro factors can give a deeper understanding of the good and where the price may be heading. These factors may include the weather, changes in demand, and even changes in government regulation.
Some examples of types of ratios used in fundamental analysis include; Overall performance, iquidity, profitability, efficiency and leverage ratios. Some of the most common examples are; PE ratios, dividend yield, ROA, ROE and growth forecasts. The trader would then combine these with current events and his own judgement to come to a decision to proceed with a purchase or exit a position.
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