ST Trading Strategies: Part 4
FullMoonFever
Date: 01/05/16
Time: 16:37:19
Post #: 17645664
Part 3
10) High Rating
The final rating is a combination of a formula and a final analysis. The analysis is a judgement call on your part and will decide how much you like a company. Generally, a low valuation (step 9) and relatively few red flags (steps 1 - 8) should lead to a high rating.
You can use this ten step system to rate all of the companies that you analyze. However, if you cannot estimate future reserves, then you have to use a different method to obtaining a rating. I have devised my own method using my experience. For companies that I cannot estimate future reserves, I do not use any valuation formulas. Instead, I use steps 1 - 8 and estimate a rating. These ratings are nearly always below a 3, except for some Project Generators.
Ratings are a snapshot in time, when an analysis is performed. They should be updated at least annually, or when a significant event occurs, such as an updated resource estimate, a feasibility study is released, production begins, or an unexpected event that impacts that value of the stock.
Rating Formula
Future Reserves x Future Gold Price ($2000) x 15% = Future Market Cap
(Future Market Cap - Current Market Cap) / Current Market Cap = Future Market Cap Growth
I use potential future reserves (which I determined in step 9) and an estimated future gold or silver price, which I multiply by 15%. This is my theoretical future Market Cap. Lastly, I divide the current fully diluted Market Cap by the theoretical future Market Cap and arrive at potential Market Cap growth as a percentage.
Using this theoretical Market Cap growth, I give the company a rating (see rating table below). Currently, I only invest in companies that have a rating of 3 or higher, which is at least a potential 5 bagger. Thus, the theoretical growth must be at least 500% or higher for my investments. Many companies today have theoretical Market Cap growth targets above 1000%. However, I do not give these companies 5 star ratings unless there are no red flags from steps 1 - 8.
My future time horizon is 3-5 years. Thus, I am expecting the theoretical growth to occur during this time horizon. However, there are many factors (red flags) that can impact this potential growth target. For instance, some of the red flags include location issues (such as a lack of infrastructure, political risk, permitting, native issues, etc.), weak management, legal issues, CapEx requirements, production costs, debt/cash issues, hedging, share dilution, and a lack of growth potential.
The final analysis is to reduce the potential theoretical growth based on the red flags. If a company has a potential growth of 1000%, but has a few red flags then you can't give it a 4 rating as a potential ten bagger. The question becomes how much are you going to reduce the rating? Are you comfortable that it will become a 5 bagger? If so, then you can give it a 3.5 rating. Are you comfortable that it has the potential to be a 5 bagger? If so, then you can give it a 3 rating. After you begin rating companies, it becomes fairly easy to determine what they should have. If you are not sure, then move them down a rating level.
Rating Chart
1 Lowest Rating
1.5 Potential 2 Bagger
2 Potential 3 Bagger
2.5 Likely 3 Bagger
3 Potential 5 Bagger
3.5 Likely 5 Bagger
4 Potential Disallowed
4.5 Likely 7-8 Bagger
5 Likely Disallowed
After you have a list of companies with ratings, you will have to decide which companies you like the best. Sometimes you will prefer a company with a 3 rating over a company with a 3.5 rating because of the time-line risk for the full valuation of the stock. Often a 3 rating company will appear much stronger in the near-term than one with 3.5 or 4. However, over the long term, the higher rated companies will likely outperform the lower rated ones, but in the near to medium term, the stronger lower rated companies will usually outperform. Often these companies have lower ratings because a lot of the value is already built into the stock, and not because they are not strong companies.
My point is to not overlook the 3 rated companies. It is smart to have a portfolio that is a mixture of strong 3 rated companies and more speculative higher rated companies.
Example Rating
Let's do a rating of Canadian Zinc.
Current Market Cap Fully Diluted: $77 Million (January 4, 2013)
Projected Future Reserves: 50 million oz.
Projected Price of Silver: $100
50,000,000 oz. x $100 x 15% = $750 Million (Projected Future Market Cap)
($750 Million - $67 million) / $77 million = 874% (Projected Market Cap Growth)
Final Analysis: The theoretical market cap growth target is 874%, or a potential 8 bagger. They deserve a rating of 3.5, because they are a near term producer and should be a 5 bagger in the next 3-5 years. It would not be wise to give them a 4 rating, because they are currently only permitted for 1,000 tons per day, which will limit production to around 2 million ounces per year. This limitation could cause them produce at a lower rate than their future reserves, and even if they increase their permit, it will take them several years to ramp up production to match their reserves. Also, production will not begin until 2014 or 2015, and that adds risk. Another red flag is their lack of pipeline projects, because this is a single mine property. For these reasons, some people might rate them as a 3 instead of a 3.5, and I couldn't argue with that. However, I gave them extra credit for rising silver prices and being based in Canada. You have to use your judgment on what you think a company can achieve. If they were planning to produce 4 million ounces by 2015, then I might rate them higher.
Note: Using my low valuation method, Canadian Zinc's future reserves are currently valued at $1.50 per oz ($77 Market Cap / 50 million oz). This is well below the $2 cutoff value.
952i
Date: 05/05/16
Time: 09:25:39
Post #: 17681539
Some premarket thoughts for all.
forrestfield
Date: 14/05/16
Time: 16:13:52
Post #: 17767552
In simple words, I don't buy even a single stock based on TA... however I check the recent trading like how many shares have been sold below my buying price and what is the average trading price of the stock... when it comes to illiquid stocks it's painful to take position... so I only buy them when there is a seller... and if no seller I just avoid... there are plenty of liquid stocks with strong FA just like CHK now... but once these are soaked volume decreases until the catalyst event and then you can sell all you want... plenty of volume...
So FA is all I do... I know I should learn some TA particularly to exit my positions but my day is normally occupied doing research... Perhaps I will learn in future...
Cheers and all the best... hang in and don't worry about the mistakes and even losses you generate pretty normal early days... keep learning and avoid the same mistakes..
Chanzformerz
Date: 15/05/16
Time: 21:26:57
Post #: 17772582
Nothing beats learning from experience in my opinion.
The good thing about loosing money when your young is its like to be a smaller amount lost compared to later on.
You run home crying to your mum but one day youll look back at the days you cried and laugh.
And on the flipside, you might also look back at the days you laughed and cry... I believe humility and the ability to remain humble is also a leading indicator of success.
Ive seen too many investment managers take excessive risk because of their egos. Only to get caught with their pants down.
Experiment enough to find your preferred market, what keeps you up at night, your weaknesses.
Track every trade and have detailed reasoning recorded and look back to evaluate yourself. People are programmed to make the same mistakes unless they change their program or keep tweaking it.
Challenge every position you have open every morning and justify why each one should still remain in your investment mandate. Have a colleague or friend play the devils advocate.
average mkt returns are 6-8% so if you have doubled your account you're ahead of the rest by a fair amount. But try to measure yourself over a 3 year period instead of 1 yr, or a full mkt cycle.
When your portfolio gets bigger you also have more to loose, more to worry about.
A real life example I could share is in my role I am not able to buy (or even pitch) any stock that has low liquidity <$1mil traded per day as we would not be able to liquidate the position without moving the price. Or sometimes you sit there for days buying at the same dam price before you can get your entire fill for clients.
Of course dark ice orders adress this problem.. but then compliance & regulation is always changing. just to fck with you.
Anyways ill stop rambling. Good luck and hope you make something out of this post.
sharks37
Date: 03/06/16
Time: 17:46:24
Post #: 17947578
Delays is a good subject for weekend discussion - it has been in the forefront of my thinking in the last couple of months since I decided to trade for a living.
The first thing I realised is trading for an income is a completely different ballgame to trading/investing when you have a job. When you have a job and its essentially a hobby, you can afford to ket stocks sit if they don't make a move because you have an income already, but if you're trading for a living the pressure is on to generate an income on a weekly fortnightly or monthly basis - and like any business you only have access to a certain amount of capital (the trading business capitalisation in other words) which you have to preserve and if possible grow.
So from my perspective funds turnover is really important - so I measure the number of days I have funds invested in every trade and I measure:
1. Total funds invested as a % of capitalisation
2. The length of time (number of days) for each trade (i.e. between entry and exit)
3. The dollar weighted average length of time for each trade
3. The opportunity (bank interest) cost for each trade
4. Win/loss ratio in both number and dollar terms (so i know whether my risk/reward ratio is set right) amd all trades are fed into a histogram so I can see the spread of results which I use as a basis for setting goals/objectives for continuous improvement
I also:
1. Set a blanket stoploss level for all trades and set trade size and risk/reward accordingly, and I record compliance / non-compliance to my stoploss rule for all trades
2. Set a threshold for funds allowed to be tied up in "bottom drawer" trades (no greater than 10% in trades longer than 90 days) provided I have a justification for each position in that category, and in fact I have set as a target to not have more than another 40% of capital tied up in trades lasting between 30 and 90 days, leaving at least 50% of capital for trades of less than 30 days (or sitting in the bank)
3. Have a continuous improvement program which covers a range of aspects in relation to my trading including setting objectives for improvement in trade turnover and actions to achieve those improvements
4. Do a monthly report covering all the above plus monthly P/L and balance sheet which I use to force me to review my trading to identify what I did well and what I could improve, and also to distribute to my wife as a key stakeholder for oversight and transparency
One strategic decision I also made at the outset is to divide my trading into market types of which there are 4 - stocks, indices, forex and commodities. I did this because I find timinng entries for stock trades challenging not in terms of making a profit, but in terms of making a profit in a short period of time (i.e. Getting in just before a move). In contrast, trading the other 3 market types gives me 2 benefits:
1. They are a lot less capital intensive than stock trading - because I use CFDs for these markets I need less than 10% of my capitalisation for trading these markets, leaving 90% for stocks
2. I typically trade these markets on 1 min to 1 hour charts so the majority of these trades last no more than 1-2 days, and a small percentage up to a week.
3. I have set as a target to earn 50% of my income from trades in these markets, and 50% from stock trades, so in other words I have a base income of up to 50% of my target income, and the rest must come from stocks.
All the above has in only a few months taught me to be a lot more ruthless in cutting losses quickly, and managing my capital a lot more efficiently than I used to as a part-time trader.
Of course the more experienced traders here will probably know all this, but I thought I would share my take on it given I have decided to focus on capital management a lot more rigorously.
Cheers, Sharks.
Zandaya
Date: 03/06/16
Time: 19:39:15
Post #: 17948354
With delays I will mention planning/ timing!
depending on your trading strategy/plan, every trade you enter into should have a plan, wether it's a quick turnover day trade, a few days/weeks STT , a few months mid term trade or in the bottom drawer long term investment.
If you've done your research on FA/TA and you're in early on a stock for the long haul then delays pretty much form part of the plan and that's when you should also try and stay away from the individual stock threads!
If your plan is to enter into a STT and you can't afford or don't want your money locked in for an indefinite period then IMO this is when you enter/exit based on TA signals, same goes for Day Trading obviously! Problem starts when many many traders get caught up in the hype of certain stocks buying in on the hype of forthcoming news and unfortunately not realising they've bought at the top and then all of a sudden profits have being taken and accumulation/soaking stage has began, delays kick in and they are left thinking what now? Sell for a loss or hopefully ride out the accumulation phase and either sell/hold into the new mark up phase when news finally does arrive!
Prime example SRT, quite a few holders have accumulated since RSL days and have had a long term parcel alongside a trading parcel, the majority of news flow for the past 6 months was ptetty much RE - change in timeline (delay)!
The thread literally became a battle field with new & old holders battling it out! Put quite simply those that bought in late were angry with every delay because they hadn't planed on locking in their funds for quite so long, their thinking was to make a quick buck and move on but buying in without a pre- determined plan has them now either selling for a loss or getting shaked out for a few pips!
The long and short of it is- yes delays are annoying but timing and putting a trading plan into action are the key as to how you deal with delays.
Techmeister
Date: 04/06/16
Time: 09:53:34
Post #: 17950593
Delays...(there are only 2 major components of trading - the SP / and time - when time gets distorted it can play havoc with your strategy and results)
Even great stocks have massive retraces and significant time lapses - eg BUD ran from 5 cents to 24; back to about 12; back to 24; back to 11; back to 21; and now sits at about 12 - all over a 8 month period - staying on that ride would make anyone car sick
So as much as a LT holder might have faith and conviction there is a great deal of whiplashing to contend with - and a great deal of time waiting for the permanent re-rate
What makes it harder still is that sometimes these retraces are very serious danger signs - consider ZIP plummeting from $1.50 to 20 cents - or 1PG nosediving from over $4 to 50 cents...will they ever recover???? how much time should you give these???
So delays are not just inconveniences - they are possible signs of impending disaster
Consider ODN - the mammoth wait for consolidation details could well be a portent for the whole deal falling through - same goes for FCN
Traders need to have a strong sense of the meaning and value of time - and need to able to differentiate how long it takes for a business to build from the signs that the business is failing
Dazedandconfused
Date: 04/06/16
Time: 10:33:27
Post #: 17950809
Delays...
All good things come to he who waits
Irish rebuttal... A man has to wait a very long time before a roast duck flies into his mouth.
IMO...
If you happen to spot something really good before most others ... you will get a good buy price, but, the trade-off is you have to wait for others to see the same thing.
If you buy just before a move ... TA can help ... but its more than 50% luck involved.
If you buy in anticipation of a well flagged trigger ... any delay is going drive the price down.
I am definitely FA inclined. If the FA is solid ... then delays can work in favour of the patient.
raskolnikov
Date: 09/06/16
Time: 05:19:57
Post #: 17990338
don't usually bother sharing this stuff because the quality so good here
but it's 5am and thought it worth a post for anyone who wants to work on their exits for a trade going against them...
this was one of the clearest, most unemotional trades i've had due to 100% ruthless rules about actions/plans before entering
it was an experiment with a pennant full of supply candles (you can see the upper tails all the way through) but at the tight end the price was supported well at 039/040. took a v. small entry at 040
plan if trade goes well and it breaks upside: buy triple the amount if it closes above 043 on volume with favourable updated financial information as the last quarterly was a touch and go
plan if it breaks downside: stoppy at 038. if i get stopped out in a bear trap and then it runs up, so be it, just miss out. wait for a bull flag or something if the financials improve and it trends back up.
don't have many losing trades but gotta work on exits for the ones i do have. usually i sell the first bounce (like when vmc bounced to 26c 09/05 from a 26c entry 27/04) but this was far more pleasant to just get the stock outta the portfolio rather than waiting and biting nails for a bounce that might not come
G8C is the stock
plan turned out well
a bit lame all these hard and fast rules, working on psychology etc... but they safe you a headache huh
sharks37
Date: 19/06/16
Time: 20:07:00
Post #: 18068762
………….. I think there is a difference between TA (and indeed for that matter FA)...and trading.
Both A's represent analysis so analysis is one skill, requiring research, background knowledge (whether charting knowledge or company/product/industry/market fundamentals), and ultimately interpretation.
On the other hand trading is the process of planning and executing trades for the purpose of making a profit. Based on our analysis we can all determine things like value, support/resistance, and based on these entry and even exit prices. But then there is execution - developing trade criteria and rules, having a plan, using risk and capital management rules to formulate that plan, and then following the plan.
Imo many people are good at analysis in their own way. Where many people come-a-cropper is when it comes to actually trading -pressing that buy button and sell button when our plan says we should (if we have a plan).
The best analogy I can think of is it being like doing a university degree and then actually working in your chosen profession - the degree teaches you the theory of the profession but not the application in the real world.
nihilism
Date: 30/06/16
Time: 07:28:50
Post #: 18156273
It's not how much you win on average that counts in trading as a long term goal, it's how much you lose on average.
Just a thought.
Freehold
Date: 01/07/16
Time: 16:26:37
Post #: 18173178
Announcements
- What makes a good announcement ie: What details/depth as a minimum do you look for in a good announcement?
Difficult question to answer as there are so many different types of ann... mining companies are diff to TEch and biotechs etc ... Any unexpected good news that moves the shareprice could be constituted by a short term trader as Good. But personally I like the company changing/maker announcements that least to big bagger moves
- What makes a bad announcement?
Unexpected bad news or new just under market expectation
- What to look for in an announcement
An Announcement that surprises the a market to the upside (EG AKM this week)
- When to sell or buy on an announcement
When the market seems to have already factored in the news by significant price move pre-announcement .. also check the HC threads for the stock ... if there are a millions bulls on the threads ...sell the ann unless its really big news that's unexpected.
- Any other tips around actions to take when announcements are made or due.
Difficulty is sorting the wheat from the chaff especially prior to the market open... You may have 40 - 60 announcements and how to pick the runners or the stock that will have a several day rally is the difficult... For example I read the AKM announcement about rail this week re market open but skipped over it has the stock had been out of favour for years who would be interested in rail link to Coal in Mongolia ... answer lots of traders who remember the fundamentals of the stock from the Coal boom days
20521
Date: 02/07/16
Time: 04:07:18
Post #: 18176036
Let's just hope we can all learn from our mistakes.
i have 5 core rules on a posted note on the side of my screen.
1. dont buy before 11am
2. check weekly，monthly chart for trend first.
3. if way outside bolli’s on daily dont touch ....yet
4. if rsi is above 70- 90 come back in 3 weeks on weekly...there is always another code to buy.
5. patience...think twice and half capital outlay.
(my biggest problem over committing and having to sell too earlier based on lack of funds)
....happy to report this problem doesnt exist anymore.
i dont trade with stop losses because im in control of my emotions (if you get on your chair and punch the air in excitement its time to get out !!!!
In the past 7 years i have seen too much stop hunting by the funds and lost a bucketload by being taken out by a single pip only to see it turn around and reverse hard..i sometimes allow for swings in the share price of upto 30-40% and buy 2 parcels.
