Saturday, October 02, 2010

Trends in motion tend to stay in motion

The mantra around here for the past year or so has been Trend Following.  My version of Trend Following has developed into a simple technique, based upon an algorithm which is objective and lends itself to a mechanical application to trading.  But it wasn't always so.

A decade ago I came up with what I named, "The Two-Second Trading System (Three, if you live in California)" These are the rules:

(1)  Look at a stock chart.

(2)  Ask yourself one question:

     “Do I wish that I already owned this stock?”

     (3) If yes, it is a BUY; if no, it is a SELL.

Simple, almost eloquent, it utilized the intuitive self, or as science has named it, the right side of the brain. As it has morphed into my current Trend Models, it is still just as effective, only now it uses the left side of the brain, the analytical and sequential side.  What follows is an example of both approaches working in tandem to make money in stocks.

On September 13th I posted on this blog two rare earth plays,  REE & MCP.  I had given them both to my subscriber list about 10 days earlier and at lower prices. Here are the two current charts with the Sep 13 BUY labeled:

The REE chart also includes the LONG generated by the Trend Model while MCP is a recent IPO so its very early LONG wasn't nearly as telling as REE's Trend Model Buy.   Nonetheless, the take away from these examples is how Trend Following works (most of the time).  At almost any place on these two charts, the Two-Second Trading System  worked to get long as did both Trend Models which were long for almost the entire runs up in both stocks.

I think most traders would look at REE and MCP on September 13 and think that it was too late to buy, as both stocks were already UP in a significant way.  Trend Followers would have none of that.  Both these stocks were clearly in up-trends and the signal was BUY under the Two-Second test, as well via the Trend Models.  There were no other considerations.  To say it was too late to buy would be tantamount to saying, "These stocks are at top tick, there is nothing more to gain."  What are the odds that anyone can pick top tick on anything?

This illustrates the core tenet of Trend Following:  Trends in motion tend to stay in motion.

Since sent out to my subscribers, REE is up 70% and MCP is up 50%.  Since posted here, REE is up 45% and MCP is up 25%.  Yes, I picked two very profitable examples, they all don't do so well, especially only after two to four weeks.  But they are conspicuous instances of Trend Following at its core, whether the left or right sides of the brain are called upon to make a decision. 

I use them both, but that's me.



Anonymous said...

But nothing goes up in a straight line, especially precious metal miners, are volatile ,big swings.

it would be an extreme example of chasing a stock to buy them now.

the time to buy was in july.

all it takes for any junior miner to come tumbling down hard is for a few ,even just one, poor drilling result, or even a less than exciting drilling result.

With the current public sentiment jumping now on the miner bandwagon.... price action is soaring in many mining stocks... exceeding the real value of companies that are often still in early exploration stages. early development stages.
The prices are jumping way ahead of value.

Not a problem if one was lucky (or skillful) enough to discover and buy a miner with great potential at a rock bottom price

but thats the essence of this game in playing junior miners.

you did good finding these.

I did bad not seeing these in july.

I saw others you didnt see.

Doug Casey says"you cant kiss all the girls..."

and still ,we wish we could.

There are other miners out there to watch.

Some are correcting,sort of , like EGO
some are still in range of a fair buy zone ,like THM

One good stock to own, not a miner but a gold trust ,I like, is PHYS.

Many good miner stocks out there but even a moderate dip in coming weeks would be welcome for getting on board.

but Chasing the ones already out the barn is risky.

like what happened for those who chased NNVC at 2.00

junior miners need real time,long time periods to mature and develop,drill good holes, drill more good holes, create infrastructure, etc, always be appealing to takeover partners.... evolve in smart process

like the way NNVC is evolving.

sheeple investors and traders jump on anything that announced a good drill hole,or a pump from a newsletter, and its off to the races for a week or two. followed by months of pullback,and discouragement because sheeple investors chased the bus when it took off without them.

this is the "due" part of due diligence research.... doing it in due time, on time, ahead of the crowd.

That time to buy was in July.and february before that.and last fall and summer 2009.

The next time to buy might not be until next spring...unless there is a decent correction soon. but there might not be any real correction this fall because of the sheeple sentiment feeling the gold fever hype starting up.

alot of press and promotion these days about fiat currency wars and debasement and advocating for moving into gold /silver and miners, alot of merger/acquisition talk...its become mainstream consciousness.

So any pull backs in price now might be more shallow and shorter term

which tells me the market engineers,if they want to keep the precious metal mania under control

will have to find the right time to slam it down
probably after the election, after thanksgiving,and or after christmas.

like last year when they made the move in early december and smashed it hard in january.
and the down wave didnt really hit the bottom until July.
That time period requires Alot of Patience on the part of investors looking to make the right move at the right time.

...more like 6 months of watching and waiting. and careful timing . but along the way.... a few junior miners will have a great drill result, and a major miner will make an offer, and you'll have a winner .

so it pays to watch the basket every day .and be selective.

Anonymous said...

hi Allan,
some time ago you mentioned about a potential of MRNA - seems bottoming right now...


Anonymous said...

allan, do you by manage a fund for investors to invest in?

Anonymous said...