Stockradar: iiNet (IIN)
Our “edge” may be considered the use of price as the chosen analysis tool or that I follow the natural long term trend of the market and only buy stocks. Or possibly the simple four entry and two exit rules or perhaps it is the consistency of employing the methodical approach to analysis or that strict money management rules are employed.
It could be one or a combination of all of them to help move those odds nicely in my favour that this will happen rather than that to create that small edge that may be the difference between success and failure. The trading edge is the consistent employment of 4 price signals to take advantage of the natural long term up trend of the stock market. The money making edge is the employment of 2 simple money management rules to exact the best result.
Then consistency, discipline, and focus unravel the mystery of finding a psychological “edge”.
We need all the help we can get to become consistently profitable. So what has this approach unearthed for us recently?
What are some of the stocks we have bought in March?
RHC OST MAH TPM IIN AGO and RIV.
What gains have they made so far?
Over 16% absolute or better than 200% annualised
ILU was added last week and is already up 7.3% or annualised at 244% as at yesterday’s close. Breakouts and Trends are what I track and as the majority of trades are less than a year I annualise all returns as they compound during the year! In fact our current 40 selections as at today are showing a whopping annualised return of 44%. I could sell pack up and go home and be happy with that result for the year, but I won’t, because I love the challenge will strive to improve it as the year goes on.
So how do we do it? Stock specific analysis is the first clue with simplicity and consistency the next two clues.
Welcome to Stockradar’s totally independent contribution to Egoli’s Off the Chart column designed to give you a special insight into the workings of the stock market and Stockradars common sense, weekly, long only strategy that educates and helps hundreds of clients generate consistent above market returns.
Stock entries, exits, stop losses, education, trade plans, analysis, portfolios, real live trading examples, and our commentary is challenging, rightfully cynical, but also honest and it’s all there in a simple easy to read and understand format.
Today I look at the Iinet (IIN) example, what triggered it, and why, as it rallies 12% from our entry point and offers a 181% annualised return so far.
Stock specific analysis provides the starting point to my approach and this is followed closely by simplicity of rules and consistency of actions so now I want to take you through an example of the Stockradar trading process.
1. STOCK SPECIFIC IINET
2. SIMPLICITY = Automated rule based criteria based on demand and supply
3. CONSISTENCY of
a. Analysis
b. Trade Management
c. Taking each qualified signal from a basket of stocks
We all have varying views on entries, time frames, instruments etc but to get back to the real basics of Dow theory price analysis and the simple demand and supply equation we use a logical flow of evidence that builds a tangible case for entry and I analyse price because that’s what we trade – not the fundamentals. In the end nothing matters as far as what instrument is traded be it shares, commodities, FX, options, CFD’s or EFT’s we all still have to find a way of qualifying, entering, managing, and profiting from our trading.
For most the simplest and most basic “cut to the chase” route is working out whether a stock is in demand or not and this is depicted by the fundamentals of price analysis – a chart. A rising price on rising volume simply means the stock is in demand so I buy it on that basis. When that changes I sell on that basis and that is how Stockradar works.
Instrument of choice - Shares.
Time frame of choice - Weekly.
Trade type - Long Only
Analysis type – Demand and Supply equation
Demand and supply evaluation – Price chart
Why a price chart?
It offers an easy to read graphical display of demand and supply.
It is a complete reflection of ALL buying and selling actions.
It thus becomes the perfect source of information to determine the demand / supply balance.
On the IIN chart we can see the smaller ups and downs of demand and supply within the bigger picture of a demand dominated stock and it is those smaller waves of breakouts and trends I trade and make profits from.
Of the three trades you can see we began with one sharp profit, a small loss, and now one big profit that is growing each day and now we have “got one” the key here is to manage this trade to its optimum conclusion to eke out the best result and as such money management must now take control of this trade which means a profit will be made because my stop loss is now higher than me entry. Now it is just a matter of just how much I can make.
The entry is based on a simple price based equation of when demand overtakes supply and as price analysis is NOT a perfect science we defer to what is, and what we can make a perfect and a very real science, and that is rigid and strict money management.
To generate consistent profits on the stock market consistent actions are required and that entails taking all signals (both buy and sell) generated from a defined and manageable basket of stocks to make it work. Just as a casino repetitively plays its 2% “edge” to make its pots of money. The process becomes automatic, simple, and stress free. Once the entry criterion is set those boxes are all ticked until entry, (support, price and volume rise, trigger point is set, entry executed) and once the trade is entered all those boxes are ticked (money management rules – lifting your stop loss) until the exit is triggered.
Consistency means to me that I WILL trade every breakout and thus I MUST get on to any big trend that develops from my portfolio of stocks as we have with IIN TPM and others and as mentioned in the opening statements as the market has moved strongly over the last month suddenly my annualised returns are hitting the 40% mark – now to manage them all to that optimum conclusion and that can only be done by managing the money risk and exposure via money management rules that reflect and respond to that. Money management rules also enforce me to take losses but provided I limit them to a small set amount that is totally acceptable to a trader. What is not is to let them get big! There is the killer just like IIN is becoming a winner. It’s OK to let profits grow but not losses.
And as to where the stock market is headed, I have no idea and I have absolutely no need to know because my approach only cares where specific stocks go. If I want to trade the indices I analyse and trade the SPI or EFT’s. It is a nice logical and comfortable way to analyse stocks from top down but unfortunately the market is not logical or always comfortable and in our often one stock dominated industry groups it makes completely no sense. Just look at TLS and IIN or TPM!
There are many market misnomers such as this that lead us to ruin or missed opportunities as we blindly accept them. So be smart, individual, approach things simply using common sense, take control of your own trading, and you’ll reap the benefits.
“As a weekly long only equity trader my foremost rule is to protect and preserve while profiting from the uptrend cycle of the stock market and this WILL happen if I follow the rules and that’s why I don’t fear losses.”
– Richard Lie
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