Ride ‘em cowboy
One of key premises we work with at Stockradar is the weekly time frame. It helps you filter out the daily ‘noise’ and allows you to ride those big trends with confidence. Our natural inclination when profits are growing fast is to ‘take the money and run’, or use a shorter-term chart to try and get the ‘answer’ you want. Restraint and discipline is needed when investing and for good reason. When money is riding on your decision it is important to stay on for the ride for as long as we can to get the best result. Making ‘decisions on the run’ or disregarding trading plan boundaries that you know work is dangerous and can cause emotional conflict and mixed trading results. Of course the decision is always yours and Stockradar is only here to offer you guidance based on my experience. However try and push those ‘natural’ anxious thoughts from your mind and let the markets do the work for you.
‘Holding the hot stocks and avoiding the dogs is the path to success when trading the stock market’.
This may seem an obvious statement but most investors find this difficult to achieve. Investors often try too hard when there are often some very simple common sense answers right in front of us. There is always a solution we just need to find it and then let it happen.
Market sentiment plays a critical role in assessing share price movements. Stockradar delivers a consistent measurement of market sentiment using its unique tool, the Trend Intensity Indicator.
The Trend Intensity Indicator combines and weighs four simple tools: trend, volume, moving averages and price momentum. This generates an invaluable benchmark that highlights only those stocks with compelling trending qualities that offer the best prospects for sustained price movement.
There are two huge issues facing the fund and portfolio management business at large are the high fees they charge and the inconsistency of their portfolio returns. Fees are a killer and at recent high levels they have had a huge and detrimental effect on the portfolio values of their clients. Portfolio returns are a very topical subject at the moment but Stockradar research shows the financial industry is not providing, with their active and passive offerings, what is needed. Clients are being brainwashed into thinking that “active” or “passive” are the only alternatives and that has become quite entrenched in common thought. Investors have become frustrated by the under-performance of these offerings and the attendant high fees. Happily, there is another alternative, one which is aimed squarely at the end-user rather than the provider.
The best investment strategy you will ever find is not the one with:
- the highest return,
- the lowest Sharpe ratio
- the lowest maximum drawdown
- the strategy currently beating the market
- the strategy that worked best in the last bear market
I have a little secret. In in all my years of running the Stockradar portfolio the heart and soul that has been a constant in driving returns has been the good ‘old boilers’ of the industrial sector, especially during corrective phases. Words I’d use to describe these stocks are safer, less volatile, steady, solid, often high yielding with more consistent trend behaviour but alas they can be somewhat boring compared to the fascination with gold, mining and the odd biotech and technology stocks. The latter we really have to leave to the US market, as that is where the real biotech and technology stocks are.
Building a weight of evidence is always the aim when making a case either way for a price move by a stock.
Sometimes the evidence is strong and generates a clear signal whilst at other times when it’s not as clear then a neutral stance is the safest route. It’s that simple but ‘seeing’ the evidence clearly and for what it is without tainting with your own biases is difficult at times. That’s why we build rules to control our biases and influence over what the price action might bring. Detaching yourself is a real discipline. These rules are built, developed and fine-tuned over time, that allows you to develop good rule-based arguments that control your trading (and yourself) and that will generate consistent results. These rules will have an objective that you have set out to achieve. Then from a quant perspective it is a matter of overlaying the rule based template on stock price behaviour and repeatedly and automatically responding to the signals generated. That ‘consistent’ process equals ‘consistent’ outcomes. Market conditions will dictate, to some degree performance and your rule-based trade plan also needs to be able cater for that whether its generating profits or simply maintaining a cash (safe) position that is not losing your money. Sometimes that is the best place to be.
Stock selection, trade and portfolio management are numbers games. Try not to think about stock picking, broker advice, fundamental analysis, all of which may have a place in people minds but that’s not what we do so lets for a moment just be singularly focused on one defined strategy that achieves an objective. The numbers give a somewhat predictable outcome if we are true to the repetitive processes we set out. Many of us find it hard to make the jump and blindly follow a ‘single focus’ process when we are distracted by other things such as media noise. We need to close that door to focus clearly, especially as it not a part of our decision making process. The current market is a classic example of the worry that can distract our focus and with that goes a weak market index to exacerbate concerns. But that doesn’t have to roll into our methodology. In fact it is exactly why we have such a methodology to remove the dark cloud effect it can over our trading. We should be able to trade with confidence and enjoy it. If our method is effective then why should we worry? If opportunities are there we must take them and not let fear control or override us.