Developing Your Trading System1

张玉

Developing Your Trading System1


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The most asked questions I get - are:
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) ~& q; I: W& J: U                1 – Why did you buy?
; C, p6 M/ r$ r  l$ s. c                2 – Why did you sell?
1 ?6 k. ?8 ]) I' V& E  D6 g                3 – What is your system?
                4 – Why can I not duplicate your results?
                5 – Should I buy?
5 D$ C& w! `8 b/ s+ Z                6 – Should I sell?
, U0 E; o/ K5 W0 Y% g2 e. [7 ^  a                7 – What’s hot today?

$ J1 _; A7 W0 o3 a  Q1 OOver the next year or so, I am going to try and answer these questions. Every two or three days, I am going to pass on a tidbit, most of which will not be over two pages in length.
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Rule #1 Successful investing is hard work!  Be prepared to make an effort or give up now and buy Canada Savings Bonds.  
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Rule #2 At least thirty percent of your investments will be losers!  So plan accordingly.

Rule #3 Have a system!  Ratios, drilling results, price charts etc. are indicators not systems.
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Does Pat have a system?

No! ah Yes! ah! Sort of!
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8 }" t- E. F* S) ^" ]; xI use a combination of Fundamental, Technical and Portfolio indicators that change with each investment and that I override whenever I see fit.  Ahhhhhhhhhhhhhhhh!!!
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The problem with my system is that it is hard to replicate and I tend to buy too soon and get out too early.  I do however tend to make money on most of my trades.
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- q+ r) u; w% X$ [5 wI look at the economy for my trading time frame, watch for some fundamental indicators(understandable to the average guy on the street) to catch my eye and then apply technical analysis to help me decide when to buy.  The same approach is used to make a sell decision.
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Two Examples:

This time it worked:
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& m4 h; R5 e" B8 |; P4 G! nNortel – It is the spring of 2002 and Nortel has fallen from great heights because it had lent its customers money to purchase Nortel’s own products. Nortel still makes a first class product, including putting the switchboard into the Whitehouse each year. The question is – Will they survive?  The newspaper reports that Franklin-Templeton and Brandes, both well-known fundamentalist mutual fund companies have purchased about ten million shares of Nortel each.  My interpretation – these two companies think that Nortel will survive and if it does, over the next few years the price of the shares should rise. Templeton Funds are well known for getting in two early so I go to my charts and wait until a series of indicators say now is the time.  I am still too early but I pay a third the price that Templeton has paid. Nortel is now up 800% from its lows.  I have had three sell signals from my short term indicators but not from my long term indicator so I have not sold yet.

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This time it didn’t:

Rule #4 Follow your system – don’t try to predict the market.  The market is always right and you will be wrong.  Let the market tell you when the time is right.

' H% c8 ?- O9 yWendy’s – Late August 2003, Wendy’s is trading at $28. A story appears stating that Wendy’s is growing twice as fast as McDonald’s due to the growth of Tim Horton’s in the U.S.  The technical indicators say buy now.  My secret source down in NAIT baking says that Tim’s is going to frozen donuts because they cannot get enough bakers.  I say: the market always goes down in October so I will wait for a better price – just in case.  The market does not go down in October like it has for years and I do not buy the stock. Wendy’s is now  at $39.14 six week later.

zsm2002