Slow Trader

Tag: market crash

  • Fish and chips or a’ la carte?

    If our restaurant served fish and chips one week and a’ la carte the next, both set of customers are going to be disappointed at some point.

    As with what we serve at the restaurant (within reason) we have to be clear in what we represent in trading.

    Most of our Slow Trader contributors are slightly north of 60. Okay, all except you SA. But you’re close enough for it not to matter.

    Therefore, you’re looking for the fund to do something interesting within the 3 to 7 year period. The younger readers, those under 45, can opt for our share ISA idea, a 20 to 30 year investment.

    These are the two options we’ve blogged about. (1) a dynamic fund that uses lower time frame charts; and (2) a long-term ISA investment based mostly on fundamentals.

    We like the short-term and the very long-term. We don’t like what 99% of the investment market are using, the medium term investment idea. For the long-term investors they expect to go through a few market crashes. Its part of the game. The long-term investors look at this as an opportunity to buy more at lower prices. The Slow Trader is a type of hedge fund that trades both long and short. The fund rides the wave whether it’s going up or down. Everything else in a market crash, the 99% of the investment market, gets stuck in no man’s land with a significantly reduced portfolio.

    For the Slow Trader fund we’ve had some glaring blunders and some moments of brilliance. We’ve benefitted from taking the time to trade the 5-minute charts over the last year, as the lessons from this were vital. However, we’re delighted with the early results from trading 4-hour charts.

    We’ve traded shares from the daily charts but were significantly more successful coming back to the 4-hour charts. Therefore, we now trade a selected mix of currency pairings (FX), commodities and FTSE shares using 4-hour charts.

    We have three trading opportunities a day 8am, 12pm and 4pm. (8pm is a consideration for the FX and commodities-the share market is closed at this time-but as the market goes into night it generally has little movement). With the 4-hour charts we can trade many more markets than is possible with a lower timeframe chart, and we are more likely to benefit from an extended trend.

    Notice the trade amounts in the “how much do we risk” page for 4-hour charts. This is not a gimmick. We trade with a close eye on this page. For the time being however we are trading in the lower amounts per pip/tick and will graduate up to full trading potential (at risk in the thousands) within a few months. It is startling how the fund can grow when we get it right, getting it wrong is not an option – hence the start with the new charts at the lower risk amounts.

  • How to invest

    I have written about investments before. But it is worth going over again.

    The problem is the medium term investment area. Where most of us have our investments. Mutual funds, pensions and the like. This is the near term to 25 year investment timeframe.

    The investment area that works, if done correctly, is following Warren Buffet’s example of investing in undervalued stocks and holding for more than 30 years, indeed he doesn’t sell.

    The other area that works, but is difficult to master, is the very short-term stuff. I cover this every week in this blog.

    Okay, we have only two time-frames that we can invest with confidence: the very long and the very short.

    Why does the middle investment area not work? because of market volatility and the probability of a market crash within that time frame.

    A market crash for the Warren Buffet model, the very long-term investors, is just a blip in the big scheme of things. Not a problem. In the Buffet model we go through many crashes and use them as opportunities to add more stocks.

    A market crash for the day traders and daily chart readers (like myself) is not normally an issue because the signals of a crash will show on the day and get out stops are very tight for these type of investors. Actually, for these guys, if they’re good, a crash is a big payday. They’re taking it all from the mutual funds.

    For the Warren Buffet followers among us we need excellent fundamental information which we review annually. This information we’ll cover in another blog.

    On the other extreme, the short-term investors, day trading and daily chart reading, is not for everyone.

    So that leaves us back with what to do about the middle timeframe investing problem.

    If we have to be a middle term investor then avoid the traditional, heavily biased towards stocks, mutual funds.

    Watch carefully where the mutual fund invests. Few funds balance investments between cash, stocks, bonds and commodities. Funds that do this, and not being more than 25% invested in stocks, are extremely steady funds and good medium term investments.

    If we do have to go the mutual route then costs are a big factor. For every 1% that we pay a mutual fund will result in 20% to the fund managers over the medium time frame. Look for a cost of around 0.5%, no more. Same goes for pension funds.

    The majority of mutual funds, however, invest more heavily in stocks and most don’t beat the index. These mutual funds are in the danger zone. When a stock crash happens the fund profit and much of the capital is wiped out. Allow several years to get back to neutral. Not a lot of fun.

    So, if we have to invest in the middle term investments then look for: a fund (mutual and pension) that has low fund costs; and an investment portfolio that balances bonds, cash, commodities and stocks – and is particularly light on stocks.