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Super,
As always, appreciate the input!
Preston
--- In equismetastock@xxxxxxxxxxxxxxx, superfragalist <no_reply@xxx>
wrote:
>
> Unfortunately, Preston, the thinking in this excerpt, while
exactly on
> the money, is almost totally disregarded by newbie's. It's not
> promoted by the guru's because this kind of thinking goes against
the
> get rich quick mentality that helps sell their books, services and
> systems.
>
> As many of the articles in Roy's newsletter have pointed out, if
the
> universe of stocks is rigorously screened with fundamentals and
quants
> prior to applying TA, finding a method of trading from that group
is
> infinitely easier, much more profitable and substantially more
> consistent than screening stocks based on TA.
>
> I just did a series of systems tests on Value Line data back to
1998.
> (Thank you very much, Cameron, for assisting with the data. I hope
you
> got the material I sent to you.) The tests were based on using two
> methods of trading the list of stocks. The first method was a
simple
> trend system based on a pre-trend signal and then the making a new
> highs within 30 days of the pre-trend signal. The second method of
> trading was simply taking stocks that had been placed on the list
> sometime during the year, but that were in an extended pullback of
> several weeks. Trades were based on the stock having been in the
> pullback period a set amount of time and then breaking out of the
> pullback based on a couple of basic trend indicators.
>
> Half of the capital account was dedicated to each method. For the
nine
> years of the test 1998 to 2006, the average return was 15.8%. The
std
> dev was only 7.9% with an average of around 50% winning trades and
> drawdowns of less than 3%. This is amazing consistency for a
> mechanical system, especially when the roller coaster time frame is
> taken into consideration.
>
> During the nine year period from 1998 to 2006 none of the years had
> negative returns. Even in 2000, which was brutal to most traders
who
> thought they had the whole thing wired based on their 1998 and 1999
> returns, this combined system made 6.5%.
>
> Newbie's want to hear that a system is going to make them 80%,
100% or
> more per year. They don't care about making money consistently,
just
> the huge year returns because that's the vision of sugar plums.
> Unfortunately, it's also a fairy tail.
>
> One benchmark I use is to compare private money manager returns to
my
> own systems. I look at futures traders, equity traders and bond
> traders. Annual return is not the only number that matters. I want
to
> see the volatility and the consistency in their methods.
>
> This system returned an average of 16.4% over the last 5 years
with a
> std dev of 9.4%. Comparing that to the pro's returns as I've
> described, those returns would have made any of them very popular
> money managers, especially when they didn't lose any money in
2002.
>
> Based on my experience with this type of trading, my actual returns
> beat the mechanical test returns fairly easily. By looking at the
> charts, it is obvious when a buy signal is present but the chart
still
> looks weak. The application of discretionary logic in this case is
> easy and works very well to improve the system performance.
>
> There will be many readers of this post who will scoff at those
> returns. No problem. I know what the last nine years have been like
> and I know the value of consistency.
>
> Some readers of your forum will ask me to post the system, etc. I'm
> not going to do that. If there is enough interest in how this
simple
> but effective system works, send Roy an email asking him to run the
> test results and discussion as an article in MSTT, and I may take
the
> time to write it up, if there is enough interest.
>
> The main point of this message was basically to add some numbers to
> the text of what you had posted.
>
> It's too bad so few people will pay attention to what you
contributed.
>
>
>
>
>
>
>
>
>
>
>
> --- In equismetastock@xxxxxxxxxxxxxxx, pumrysh <no_reply@> wrote:
> >
> > The Trend Rider:
> > Technical vs. Fundamental Analysis
> > Chris Rowe
> >
> >
> > When we analyze a company, we use fundamental analysis. When we
> > analyze a stock, we use technical analysis.
> >
> > A "trader," is more likely to use technical analysis because it
is
> > known to more accurately assist in predicting the short term
moves
> > of a stock.
> >
> > A long term "investor" is more likely to use fundamental
analysis
> > because it gives a clearer picture of the longer term potential
of
> > the underlying company behind the ticker symbols of a stock.
Both
> > forms of analysis are the study of trends and are only as good
as
> > the individual who is interpreting them.
> >
> > While you can closely follow and profit from current market
trends,
> > fundamental analysis is equally as important as technical
analysis.
> > For instance, I'll go long on a stock when I see that the bulls
are
> > in control, and the volume is moving higher with the price of
the
> > stock, but I position myself in the companies that have
fundamental
> > strength that back up the price movement of the stock.
> >
> > The two forms of analysis should act as two partners running a
> > profitable business. Together, the two are like swordsmen with
their
> > backs to each other fighting a large group of enemies. One has
to
> > trust that it can rely on the other to protect its back.
> >
> > People often lose sight of the fact that there are over 10,000
> > stocks to choose from when deciding which to trade. It is
important
> > not to settle for stocks that don't have the strength that we
look
> > for, as long as we have the resources to get the ideas in front
of
> > us that we would even consider trading.
> >
> > Having strong criteria on both ends is critical, and if one of
the
> > two is telling you that there is a red flag or a warning sign to
> > watch out for, you should have no problem with dropping a stock
that
> > you believe is suspect. Consider stocks that have strong
> > fundamentals AND technical indicators, pitches that are thrown
> > directly over the plate.
> >
> > Let's compare the difference between the two:
> >
> > Investors typically use fundamental analysis to calculate what a
> > company's stock price should be doing. Traders typically use
> > technical analysis to draw conclusions as to what a stock will
do
> > based on what the stock is currently doing. Fundamental
analysis
> > takes a much more in-depth look at a company and the industry
that
> > it is in. A fundamental analyst must have much more intimate
> > knowledge of an industry and of the story behind the underlying
> > company.
> >
> > Whether this is an advantage or a disadvantage is up for debate
and
> > has been for ages. The idea is that a fundamental analyst
spends a
> > great deal of time "unwinding" a company's financials to get a
clear
> > picture of where the company currently stands.
> >
> > The fundamental analyst must first study all of the important
> > relevant factors that already exist. The next step in
fundamental
> > analysis is to study the anticipated changes in the company, the
> > industry, and the overall economy to try to clarify the picture
of
> > what will happen in the future.
> >
> > Technical analysis is more superficial and is done mainly on the
> > notion that the story of the company is reflected on the stock
> > chart.
> >
> > While the fundamental analyst studies the existing public
> > financials, the technician believes that if a company is poised
to
> > take off, someone out there already knows it and is already
acting
> > on it. When a large fund starts to act on knowledge of a
company,
> > whether it be public or not, they tend to attempt to acquire a
large
> > number of shares without making it very obvious that they know
> > something of value.
> >
> > This is nearly an impossible task. The public record that the
> > technician studies is the chart, because everything that
happens,
> > such as price movement as well as size of the trades, is
recorded.
> > Since technical analysis is geared for traders as opposed to
> > investors, it is used to act swiftly without taking as much time
as
> > fundamental analysis. So, the benefit for the technicians is
that
> > they have one step to take. It's a much faster form of analysis
> > that gives them the edge that they need to act quickly. Their
main
> > advantage is that they don't have to forecast their indicators
like
> > fundamentalists do. For a technician, the indicators are the
> > forecast.
> >
> > Both fundamental and technical analysis is helpful in painting a
> > more complete picture. The two should be used to complement one
> > another instead of versus one another. You can find red flags
> > telling you to get out of a stock before the rest of the herd by
> > using both forms of analysis.
> >
> > Using fundamental analysis, several warning signs can be found
in
> > the financials if you look closely enough. Sometimes they are
> > warning signs that sophisticated investors will have an easier
time
> > seeing, and other times the signs are more obvious to the
layman,
> > such as a company that is taking on way too much debt.
> >
> > Using Technical analysis however, is a good way to spot red
flags
> > that a stock might trade lower, based on news that has not yet
been
> > made public. Let's face it; the stock market is not always fair.
> > Oftentimes, someone knows something that will have a huge impact
on
> > the price of a stock before the rest of the world knows about
it.
> > This is where technical analysis can really give you the edge
that
> > you need to save yourself from a loss.
> >
> > It is for these reasons that we make sure that we use both forms
of
> > analysis when investing our hard-earned money. On the
fundamental
> > side, we put in hours, days, weeks, or months of research before
> > buying or selling a stock. But technically, sometimes we see
> > warning signs that tell us to sell for our protection. You
worked
> > hard to get the money in the bank and then transferred into your
> > stock account. You should work just as hard, if not harder, to
keep
> > it there.
> >
>
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