Sunday, February 22, 2009

Earn in ALL market conditions

If you know the trend, you can invest to earn in all conditions including up trend, down trend and even side trend... (tbc)

On an Up Trend, simply buy when the price has rebounced slightly after touching the bottom line - the support.  When the price drops a bit after touching the top line - the ceiling.

One very important reminder is NOT to spot the LOWEST nor the HIGHEST point.  Technical analysis or trend info obtained this way is not the right tool for that.  Indeed, we observe if it rebounce or breach through the expectation to confirm previous trend analysis.  If fail to get confirmation then re-analysis is required.

People who get dissapointed with Technical Analysis are the ones who were trying to use it to spot the Exact points !

On a Down Trend, you may sell first buy later - Short.  Basically it means you promise to sell item A at price A but you don't really have item A yet.  So you would need to buy item A at a later time at price B in order to fullfill your promise earlier.  If price B is lower than price A then it still matches buy low sell high concept.  The only tricky part is buy low later, sell high now.

Performing short in malaysia stock market is not that common.  I am quite sure all online trading accounts wouldn't be able to do that by regulation.  So if you really interest in short, you may need to use an experience agent or broker.  Make sure you enquire the detail process of short and what goes behind it.  Each agent may have slightly different tricks and may affect your shorting strategy.

Without ability to short, you may still do long during a down trend with higher risk.  For this scenario - do long during a down trend - you may need to learn a few more methods to identify fake and real rebounce.

Most people know how to trade during up trend.  Some people knows how to trade during down trends.  Almost no one would advise you how to trade in a side trend.  That is because when the trend goes side way, it is as good as gambling.  ( don't forget the mother of technical analysis comes from gambling methodologies )

So the best you can do is to apply some strategies on your investments.  Below is one example.

At any point of time during a confirmed side trend, do both long and short at the same time.  Short position should be higher than long position.  If the trend goes up, you can close your long position to take profit.  Keep the short position until the trend goes down, then close the short position to take profit.  Earn twice in a side trend, one sooner than another !

Don't get too excited yet if this is new to you.  If reverse trend earning method is complicated (as shown in down trend example above), then ofcourse this side way so called gambling methodology would have much more dangers hidden in it.

Anyway, the idea is not to limit yourself in investment.  You can almost always earn money in all conditions if given the right tools and methods.

Now, lets finish the first sentence of this article.

If you know the trend, you can invest to earn in all conditions including up trend, down trend and even side trend... if  the trend continues.


CK said...

As I see in your uptrend chart, you sell before you buy again at almost the same point.

Is this only applicable for stock investment and not for gold?

Michael Tsen said...

trend analysis can apply to anything that has a repeating pattern ( old blog )so it can be used in gold too. I actually plotted a graph for baby behavior and see when they eat and shit. not surprisingly every time when the trend breaks, its a sign of 'next growth stage'.

CK said...

Trend breaks....

Is there a way to know that a trend is going end and change to another trend?
Like up trend to down/side trend?

Michael Tsen said...

when the price goes below or beyond the trend line, the trend is considered broken and a new trend needs to be re-analyzed. usually we combine both long term and short term trends so that when one trend is broken, we know what is the next trend to be used - so called the next floor or ceiling.

Michael Tsen said...

a few other technical analysis claims that they can predict the trend reversal, one is candle stick

Anonymous said...

What a great resource!