The method is applied by some fund managers into equity funds to decide the percent exposure on equity and cash.
According to memory, the idea is simple imo, U bet on front runners so as long as they run earn from them. Additionally u have the flexibility to switch ur bets anytime. So instead of concentrating on a single counter and lose if it fails, u bet on potential counters with a long term view. And you continuously monitor it, change it if a need arise.
According to this, the secret to above average rates of return is not in finding the perfect horse for all times, but finding a way to switch horses in the middle of the race.
There's one trading system called "Turtle" as previously introduced by Chinwi. This was used by legendary commodity traders Richard Dennis and William Eckhardt practiced to earn millions.
If u want to read more on this;
Ok here's a simple strategy anyone can follow;
1.) There are many shares in the market, some are over-heated, some are still under the earnings potential. We call a share in value territory when it display numerous value characteristics such as low P/BV, low P/E, high yield, good EPS YOY, improved dividends, etc.. U can start with a 'watchlist' like this. (OH.. CT does provide u with these reports, usually Sriranga shares those in the forum. Thanks Sri)
2.) Try to grab at the bottom, when everyone is in selling mode or has no interest. Wait for the share to hit bottom support, bounce and close above the previous resistance which acts as support. This is just a "buy" candidate. Dont buy yet. (Some prefer buying when it reaches up or bouncing back)
3.) On this buy candidate, watch out for financial accounts to determine whether it is doing well. Then seek the recent news and AR to find developments, new strategies, new markets, etc... Then see the price actions to see whether it can have some upside potential in the short term. If not, if ur idea is long-term, mark it as a 'buy' or if for short term, remove it from the 'watchlist.'
4.) If it has become a "buy", I prefer to check the candle charts to determine the best buy point. If you do not deal in 'TA', check the last 5-7 days avg prices and vol, 52wk low and 52wk highs. A share in 52wk high should not be eliminated at all. As it can go on create more highs in a trading market.
5.) Buy the potential candidate.
6.) Sell signal - When the share reverses into a bear trend or breaks support. For those dont deal with TA, check the min prices it has fallen in recent months (3-6 months)
6.) Risk mitigation - Buying Value shares automatically reduces the risk. The high yield and low P/BV offer tremendous downside protection even in bear markets.
The obvious risk reduction strategy is to have a trading plan and to regularly review then plan your sell strategy and always follow the plan.
N.B - This is not Tortoise or any other concept.. Idealized by myself with the concepts I adopted from others' strategies as nd when I was researching.. Basic ideas came from an article that I've read somewhere long ago and I've been testing and rotating sectors and counters here and there and still striving to perfectionize this with trial and error. New developments may come as I evaluate the pros-n-cons of this strategy..
The main drawback is, no dividend yeilds are taken into account when making the observations.. So something to start with.. Ideas are welcome..
Last edited by smallville on Mon Jun 10, 2013 1:40 pm; edited 1 time in total