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Profiting from market trends?

Discussion in 'Beginner's Lounge' started by MattThomson, May 31, 2006.

  1. MattThomson

    MattThomson

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    Hey I've just started up in the market a few weeks ago and I've noticed that everyone keeps talking about market trends etc. I'm at uni doing finance and have read that trends are just random and that its information that truly matters. From what I've seen, you have to know the company that you're investing in and what their prospects are. After two weeks of looking I have found two companies that I believe are undervalued, one massively so, and thats through ignoring trends. The massively undervalued one is due to a complicated company structure and people not taking the time to read up and learn just what is going on. I believe in a couple of weeks it will double in price, and has the potential to go further. Just a few tips from a beginner investor ;) . If anyone has any information on how you can make money from trends, please let me know.
     
  2. RichKid

    RichKid PlanYourTrade > TradeYourPlan

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    Re: Trends & Information

    Hi Matt,
    Welcome to ASF!
    I assume your question is about price trends and how technical analysts view it. The basic tenet is that all the information about a stock is reflected in the price chart. My advice for anyone wanting to know more is to search and browse ASF for discussions about randomness, fundamentals vs TA, charting etc. Maybe read your textbooks at uni and speak to your lecturer too. Also read Schwager's Market Wizards or Radge's Everyday Traders for examples of real people who make real money using real trends. It works imho.

    Also please read the forum code of conduct and posting guidelines asap. If you are confident about your 'massively' undervalued co's you may wish to post what you have in the appropriate thread for each stock for others to discuss.
     
  3. wayneL

    wayneL Rotaredom

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    Re: Trends & Information

    Hi matt,

    Never believe anything you read and only half of what you see.

    I would not call price action random. It is however, chaotic (in the mathematical, dynamical system sense).

    It means carry a jacket in winter, the tendency (trend) is towards cold weather... and it might rain.

    ;) Cheers
     
  4. David123

    David123

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    Re: Trends & Information

    Welcome! lol Warren buffet ? hmm maybe...big calls ? beginner


    trend is ur friend they say ?


    cheers
     
  5. MattThomson

    MattThomson

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    Re: Trends & Information

    I was mostly confused by how some people are just using trends and trends only to help them select which shares to buy. (I'll post the new about those shares in the right threads when I buy some in a couple of days, just setting up comsec etc now. Don't want the price to jump too early ;) )
     
  6. It's Snake Pliskin

    It's Snake Pliskin

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    Re: Trends & Information

    Matt,

    Trends are momentum.

    Undervaluation is opinion.

    What is value in an ever changing environment, based on outdated data?
     
  7. MichaelD

    MichaelD Not fooled by randomness

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    Re: Trends & Information

    Picking winners and trading profitably are two separate and only loosely connected pieces of the puzzle.

    Q. Why are there 101 cures for the common cold?
    A. Because none of them work.

    Q. Why are there 101 ways to pick a stock to trade?
    A. Because none of them work.


    What works?
    A system with a positive expectancy and correct money and risk management, most appropriately but unpalatably called bet sizing.

    (and the psychological make-up to cope with the answer)
     
  8. It's Snake Pliskin

    It's Snake Pliskin

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    Re: Trends & Information

    Positive expectancy is well known and tends to be blurted out too often with disregard to what matters to achieve that expectancy.

    What are the parameters for the picking to be classed as having worked?

    There are too many variables to discredit one or the other 100.

    Picking is only part of the issue, as is management and psychology. Oh, and then there is the selling issue. When?
     
  9. It's Snake Pliskin

    It's Snake Pliskin

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    Re: Trends & Information

    Bull market gold medallists!
     
  10. tech/a

    tech/a No Ordinary Duck

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    Re: Trends & Information

    Well if your on a stock and it doesnt "Trend" in the direction your trading then you'll not profit.

    Regardless of how you select a stock I'll guarentee that if you make a profit from it it will have trended.
    Secret is staying in the trend for as long as you can.

    I hope you do post your trades as you'll find it a great learning experience.
     
  11. ducati916

    ducati916

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    Re: Trends & Information

    Matt

    A trend, is a direct prediction of the future, and as such it must be either right, or wrong, 50/50.

    There is information overload. The key is to identify the important information, and to interpret, or analyze that information in a quantitative & qualitative manner, that provides an accurate appraisal of the value.

    As I assume you are looking in the ASX, this will be interesting.

    Complicated company structure.
    We have debt, equity, & hybrids.
    We have holding companies.
    We have minority, unconsolidated holdings within parents.
    We have Partnerships (the tax situation can become complicated)

    To double in *price* or return 100% in a couple of weeks.
    While this is possible, it would suggest a speculative capital structure, generally utilizing a lot of debt to leverage the returns to equity, or, a stock so *oversold* that it is due a *technical* bounce combined with a true *undervaluation*.

    This would however suggest a *counter-trend* position.

    I'd be interested in analyzing them when you eventually disclose them.

    Snake

    Trends are momentum, or sentiment, and can change in a heartbeat, so what is their value?

    Undervaluation is most definitely not simply an opinion. It is a fact.
    Outdated data, simply displays the gulf that exists between *charties* and *fundies*

    Agreed.
    The mantra is propagated without the vaguest notion of what is, and is not actually being generated.

    Indeed.

    tech/a

    While I understand your point, and accept it, there are still the *Options* strategies that do not really require *trending*, Arbitrage, which does not require trending & Bankruptcies.

    jog on
    d998
     
  12. tech/a

    tech/a No Ordinary Duck

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    Re: Trends & Information

    Duc

    Where'd you get that from duc! There is nothing predictive about a trend--you dont even know you have one or how long it is until after the fact.


    Resulting in an opinion,your opinion. As we have seen in your live trading duc percieved value may not be universal.Holding a stock to a 40% loss when purchased at a point of "Undervaluation" has me questioning determination of undervaluation.Accuracy is far from evident from the fundamental analysis I have seen.This in itself is not a problem provided you have a point in saying that "At this point my analysis is not accurate"---your pet hate---STOPS.


    Only news from a speculative stock would do this.Its value would not likely have any bearing.


    Dont scare the guy off duc let the market analyse them!!

    Snake


    All ords has been on a 20 yr trend.Take a look at QBE had that since $7.85 and now $22 + .Timeframe my friend timeframe

    It can be as factual as you like but unless enough people see things the same way as you do and continue to see your undervalued stock as still undervalued as it increases 10%,20%,30% or more a TREND wont develope for long enough for you to profit.


    Expectancy AGAIN---the only usefull expectancy is that derived from a number of completed trades analysed over time.To calculate expectancy of an indivividual trade basis is just plain meaningless v results achieved over your last 50/100 or more trades.Both will be vastly different and more than likely there will not be a positive expectancy if calculated on a trade by trade basis.

    Mantra sure but learn how to determine it in a useful way.


    tech/a


    Thought we were talking with a novice---not Allan Greenspan.
     
  13. ducati916

    ducati916

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    Re: Trends & Information

    tech/a

    Exactly.
    The trend will continue, one possible outcome.
    Or, the trend will end, outcome number two.
    By *joining* a trend, you are making a prediction that it shall continue, or by shorting it, that it will in point of fact end.

    Whereas, with a fundamental analysis, you are *predicting* not that the trend (price) will continue, or fail, only that the valuation in time will return to a higher valuation, or fair valuation.

    An opinion based on the facts.
    Factually, it is undervalued.
    Your *opinion* rests on the return, or the exceeding of the undervaluation.

    Only because you trust the market valuation. The market is schizoid.
    The ultimate *proof* is not within the gyrations, or volatility, it rests in the *closed* profit/loss statement. The *Chickens* were undervalued, became increasingly undervalued, and are now profitable, as will be the others.

    Stops *guarantee* you losses.
    The purpose of my live examples is to demonstrate that volatility can be ignored, or utilized to increase profitability, without the necessity of utilizing stops; viz. without losing ANY money.

    The market fluctuates between *efficiency* & *inefficiency*
    Technicals generally place you in the efficient arena, fundamentals within the inefficient arena. Where would you rather be?

    DJIA has been on 100yrs+ trend.
    That is because of the underlying fundamentals of equity & economics, nothing what-so-ever to do with *technicals*

    I beg to differ................and I invoke the mighty...Bullmarket and his quest for *income*

    Assuming that capital growth is not the over-riding concern, then a fundamentally sound business that grows it's revenues, profitability & dividends can be highly lucrative.

    Example KO.
    Dividends have grown from $0.17/share to $1.24/share or 12.39% compounded BEFORE share splits. There have been two 2:1 share splits, so, if you had 1000 shares in 1989, you would have 4000 shares today, and your compounded growth in dividend income would have been 49.56% compounded,(resulting in a return of initial capital & pure profit) and all the time the share price could have gone nowhere. Generally however, they rise additionally or proportionally to dividend returns.

    jog on
    d998
     
  14. bullmarket

    bullmarket

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    Re: Trends & Information

    Hi michael

    spot on imo :)

    "A system with a positive expectancy and correct money and risk management, most appropriately but unpalatably called bet sizing." = a written and paper traded trading plan which has been tested by paper trading or whatever other means (software etc etc) until the desired returns are achieved consistantly.

    Hi Matt

    I don't thing trends are random at at all......I see them as the display of the two most powerful emotions that drive share prices up and down - fear and greed

    Basically, greed drives buyers to bid higher prices to get stock they believe will go even higher but eventually there comes a point where the fear that a stock may be overvalued stops buyers from bidding higher prices and prompts sellers to offer lower prices to lock in profits.

    So in very simplistic terms, share prices rise when the emotion of greed from buyers (and hence there are more buyers than sellers) is much stronger than the emotion of fear that the buyers will drop away from sellers.....and vikky verky for when share prices are falling.

    cheers

    bullmarket :)
     
  15. It's Snake Pliskin

    It's Snake Pliskin

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    Re: Trends & Information

    Duc,

    A trend is momentum of greed or fear. A trend is not a direct prediction of future directions. 50/50? What about ranges?


    Value is relative.

    Undervaluation is relative and opinion. Why do so many give different opinions about a given stock?
     
  16. MichaelD

    MichaelD Not fooled by randomness

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    Re: Trends & Information

    For picking to have worked it needs to improve system performance over random entry, be that improving system expectancy or reducing drawdown. The great majority of stockpicking strategies are demonstrably harmful to both parameters.
     
  17. It's Snake Pliskin

    It's Snake Pliskin

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    Re: Trends & Information

    Michael,

    Yes there is truth to that. Management after the pick is the issue most seem to avoid though.

    Personally I think picking is extremely important, however, I realise it is only part of a trade and other variables detemine, as a whole trade, what eventuates.
     
  18. ducati916

    ducati916

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    Re: Trends & Information

    Snake

    A trend is momentum, agreed, whether it signifies greed or fear is open to discussion.

    As to a direct prediction, it is, you are predicting that it will continue, you go long, or that it will end, you go short. A range, is a sideways trend.
    But really it's not that big a deal, if you don't like the definition, just ignore it.

    Actually it is.
    Relative to the share price.
    And this makes it a fact.
    KO at $10/share is undervalued, KO at $40/share is fairly valued based on analysis of the Income Statements and Balance Sheet.

    Because there are a number of different ways to *value* a stock.
    Second, it depends *who* is providing the valuation, and their motive.

    jog on
    d998
     
  19. Realist

    Realist Billie Jean is not my lover

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    Re: Trends & Information

    I'll bet you any amount of money you like that it does not double in a month.

    You must of course list which company it is straight after you accept the bet of course!

    :D
     
  20. MattThomson

    MattThomson

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    Re: Trends & Information

    OK. Any amount? Let's go $200mil. I'll then borrow $100 mil, get the price to double, take your money, pay back the loan, and be $100mil better off. :p lol
     
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