click here to read the joke of the day

This page is for long term investors

What is long term investing? Well, how long is a piece of string? My principle of the length of time I hold a stock is governed by my trading plan, therefore by my understanding of my stop loss. I split my trading capital into 3 portfolios, long term, medium term and CFD. Here we will discuss my long term portfolio.

My long term portfolio is made up of shares which I will hold for high, fully franked dividend yield. I have put together a watch list of about 20 stocks, taken from the attached table of high dividend yielding stocks in the ASX 150.

I have developed a trading plan based on waves, based on research by Quantum Globe Inc. 2316 Delaware Avenue #168        Buffalo NY

                              
  As soon as I have capital in this portfolio available, I scrutinise my list for an entry according to my trading plan. Let me outline my trading plan for this portfolio.

I will only select shares from my watch list.

I will only go long if the stock is in an uptrend

I will inspect the daily chart for a trending or retracing wave.

Now before I go any further, let me explain what I mean by trending or retracing waves.

Regardless of how strong the overall trend of the share is, the trend never moves only in the direction of the main trend. There will always be swings, mini movements against the trend. These are the swings or waves we try to capture to enter this particular stock.

These are either trending or retracing waves. Let me explain with the chart below.

chart created with IncredibleCharts Chart 1

The chart above (chart 1) shows a snapshot of the AMP chart. Although we can see both upward and downward movements it can be recognized that the long-term trend is up between August and October, as the price rose from around $9.60 to about $10.30. The waves commencing at (1), (3), (5), (7), (9), (11) and (13) are the retracing waves; the waves (2), (4), (6), (8), (10), (12) and (14) are the trending ones.

But now we have to decide which wave to use as the actual candidate to be a trending or retracing wave. I will name this wave "the active wave". I will be using the next chart to show you how to find the active wave.

chart created with IncredibleCharts chart 2

This chart is a daily chart, however you will see that we have an average true rang (ATR) weekly 28. This is the height of the wave we use to identify the active wave. We take this value from the weekly ATR, however we always use a daily chart when we construct waves.

Note this value on your chart as in chart 2. (0.396). Now we measure our waves, starting on the right hand side of the chart. I use an excel formula to work out all the values, however I show you here the manual calculations.

Wave a - b, high value = 10.5, low value = 10.11, difference = 0.39, although this is just slightly lower than our indicated value of 0.396, I would just accept that. Should this value be lower than our acceptable value, we would check the next wave, wave c - b.

Now we know, that our active wave is a trending wave, we can now assess an entry point to go long in AMP.

Many experts in technical analysis believe that fibonacci numbers have a huge influence in many aspects of nature, as well in the cycles of share trading. Thus I have carried out some investigation in this area. Experts (Amar Mahallati) say that the most important numbers are .382, .050 and .618. I have also found that many traders who follow the Elliot Wave theory set their entry at .66 and their stop loss at .33. I have decided to set my entry slightly higher at .75 and my stop loss slightly lower at .25, this gives me less chance of being stopped out too early, although I take a slightly higher risk. This risk is taken care of with my money management/risk management plan.

Let me explain how I set up my entry strategy first. For simplicity, I never use fibonacci lines on the chart, I use a mathematical formula to work out the 75% and 25% areas. Let me explain this method on the next chart.

Ok, let's use the AMP chart again and see where we could go long.

chart created with IncredibleCharts chart 3

We have the line for the active wave, we draw in horizontal lines at the 0% and 100% levels. We do not really need these lines, but it helps us to visualise the process. Then we calculate the 75% and 25% levels, easy enough to work out. All clear?

As we see, the active wave is an upward trending wave and the share price has retraced. Upward, because the overall trend of AMP is up. We now wait until the EOD price is at or above the 75% line, continuing the upward trend. When that happens, we can go long.

Now let us see what happens when we have a retracing wave. We look at Santos for this example. (chart 4)

chart created with IncredibleCharts chart 4

As we see, our weekly ATR stands at .87, we work out the height of the active wave = high - low (15.08-13.5=1.55). We accept this wave as the active wave and we acknowledge that it is a retracing wave. Now we work out our 25% and 75% lines. 25%=13.89, 75%=14.66.

Sounds complicated? A bit of practce will make it easy for you. Should it be too confusing, please send me an email.

As we see, the active wave is a retracing wave and the share price has commenced to climb again. Retracing, because the overall trend of STO is up. We now wait until the EOD price is at or above the 75% line, continuing the upward trend. When that happens, we can go long.

So let us have a look how our trading plan looks at this stage. But dot forget, as the market changes and you recognise a new active wave, you must again start to draw new 75% and 25% levels. The market is always changing and so are our entry and exit points.

I will only select shares from my watch list.

I will only go long if the stock is in an uptrend.

I will inspect the daily chart for a trending or retracing wave.

I will go long if the EOD price last trading day was at or above the 75% line.

Now let as investigate our exit strategy. In our strategy we use a stop loss order to exit our position. During our trade we will readjust this stop loss order based on our changing active wave. You must follow the market and change to a new active wave, should you recognise one. As well as that, as the share price increase, you have to extend your active wave and calculate new levels. As we are only looking at EOD prices, you do not need to be at your computer all day.

How shall we enter our stop loss order?

We read the price at the 25% level of the current active wave.

As the current active wave extends upward, we move the 25% level up,. We never move it down.

We follow this procedure until our EOD price hits or falls below the 25% level. If this happens we, will get out the next morning. Of course if we have an automatic stop loss order in place, we get stopped out automatically.

So let us see how our trading plan looks now

I will only select shares from my watch list.

I will only go long if the stock is in an uptrend.

I will inspect the daily chart for a trending or retracing wave.

I will go long if the EOD price last trading day was at or above the 75% line.

I will enter my stop loss at the 25% line.

I will adjust the active wave as required and re-calculate my percentage lines and adjust the stop loss accordingly.

I will always exit the next day when my stop loss is hit during the previous day.

I will keep a proper trading diary and enter all my buys and sells.

Next time we will look at some refinements to this plan. However this is the plan in principle, this is the plan how I use it. Don't forget : Before making any investment decision you need to consider whether the advice is appropriate for you. I am not a licensed financial advisors.

I will put my entries and exits on this page for the time being.

I entered OXR, see chart below. Price above the 75% line, stop loss entered at 3.81, the 25% level.

chart created with IncredibleCharts chart 5 Oxiana

My actual trades, following this plan, will start here. A table with all entries can be found here.All trades (Note: upgraded so loss in green)

Please note that this trading plan is risky in a down trending market

Oh well, it has happened. The market dived, I got stopped out of all my stocks on this list. However note where I got stopped ut and how much further they retraced since then. Sop loss saved me from greater losses.

Due to a completely new scenario in the market now, I have created a new watch list. You can find it here. All my selections will now be made from this watch list.

Meanwhile if you have any questions, please email me on my contact link.

Upcoming Dividends

this information is now on a separate page

click to access

===========================================================

Table showing stocks in the ASX150 with dividend yield of 4.5% or higher

====================================================================

ASX 52 weeks high (EOD 24 Jan 08)

MCH CMO

ASX 52 weeks low (EOD 24 Jan 08)

SLX ENE RCR ACK API