Ideally we want to invest in strong companies with solid earnings growth. A share on a price chart is generally either going down, sideways, or up. I use simple technical tools to determine the trend. One or more moving averages on a chart provides a quick visual check of a company's financial health.
One of my rules is to only buy stocks that are trading above a 200-day moving average. The 200-day MA is not some magic critical number. The 200 value after years of back testing and research, is a good compromise. In the context of BIG, it first traded above the 200-day moving average at $0.15 back in Oct 20, 2016. BIG continued to trade above the 200-day moving average up till Feb 9, 2018 when it opened the day at $2.06. By just strictly sticking to one rule of buying immediately when price is greater than the 200-day moving average, and later selling immediately when price falls below the 200-day moving average, the total return was circa 1,373 percent.
Immediately selling a stock when it falls below the 200-day moving average is an important risk management strategy. IMO, strong companies have no business trading below the 200-day MA. Here are some recent examples why it is important to both get out and stay out:
TLS (Telstra): most recently fell below the 200-day MA at $5.10 (Feb 14, 2017). Current price $2.62.
RFG (Retail Food Group): most recently fell below the 200-day MA at $6.13 (Feb 24, 2017). Current price $0.425.
FLC (Fluence Corp): most recently fell below the 200-day MA at $0.82 (Aug 09, 2017). Current price $0.40.
AMP (AMP LTD): most recently fell below the 200-day MA at $5.15 (Mar 26, 2018). Current price $3.59.
GSW (Getswift LTD): most recently fell below the 200-day MA at $1.475 (Feb 19, 2018). Current price $0.335.
BIG (BIG UN LTD): most recently fell below the 200-day MA at $2.07 (Feb 09, 2018). Current price $0.00.
An even bigger important consideration is the bet size. Share trading is arguably a form of gambling, hence the term bet size, can be a substitute for the more politically correct term, position size.
A 10% position size on BIG translates to a 10% loss of total trading capital. A 10% loss of trading capital is relatively easy to get back. By contrast, placing a spare $1000000 from the proceeds of a recent investment property sale, is virtually impossible to get back.
Share investing is for most people one of the most expensive hobbies they will ever be involved in. We can greatly minimise the expense by strictly observing a trading plan. Trading plans are virtually never discussed on HC or other public trading forums. There have been thousands of wasted words on this forum. Ultimately, virtually all the bloke-to-bloke talk has been a complete waste of time and money.
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