The bottom line from my experience infooverload is that within limits and subject to amounts traded it doesn't matter where you level trade points.
The limits are that if set to narrow then trading costs eat into the rewards from trading. Set too wide and the levels are never reached.
If you trade at say 1% moves you will have lots of trades, but trade very small amounts, as such trading costs might amount to more than the actual gains achieved.
If you trade at say 50% moves then you'll trade larger amounts and make larger gains per cycle, trading costs will be relatively small to the gains achieved, but you'll trade relatively infrequently.
There is a temptation to trade at 1 standard deviation amounts because graphs of the Bollinger bands (e.g. +/- 1 stdev) look like they are good at predicting, but in practice they are no different to trading at other deviations.
There are optimal bands that if traded produce the best results, however predicting those bands beforehand is as difficult as predicting future stock prices.
As such an investor who trades at say fixed 30% bands will likely compare to another investor who attempts to predict turning points etc. Accordingly trading the simplest approach is sufficient.
It's generally better to focus upon diversification and/or price appreciation potential rather than the technicalities of when to trade.
Many investments achieve comparable longer term rewards, of which bonds tend to be the most stable. Others such as commodities, stocks, REIT's etc. tend to track that reference over the longer term, but periodically encounter bubbles and subsequent bubble bursts. What most investors do however is invest after the bubble has inflated which means that they overpay for the stock. After the bubble bursts the declines can result in investment returns that underperform even cash, potentially over extended periods of time.
Much less frequently are assets truly cheap, but may be perceived as being so following a bubble burst event (when generally the asset has declined from over-priced to more fairly priced).
The best holdings in my opinion are a diverse range of stocks (domestic and foreign), bonds, gold, REIT, commodities and cash. When you hold such a collection in around equal capital value amounts and rebalance periodically whenever any one bubbles then you take profit out of the over-priced and distribute the proceeds across multiple others (in effect lock in the gain).
Such diversity also helps ensure that if you overpay for any one initially, then the subsequent decline in that one of many assets as its bubble bursts is much less than had that asset been held exclusively.
Rebalancing periodically is a must. If you hold through thick and thin then the profit take opportunities are missed. A reasonable choice of rebalance method is a mechanical one as that is more likely to be followed than if left to human emotion based trading.
Increasingly I have personally simplified my investment style having tried ever possible trading and/or prediction method I could think of. My preference now is to achieve market returns with low drawdowns and as such I'm attracted to Harry Browne's Permanent Portfolio ( http://crawlingroad.com/blog/ ) and Mebane Faber's Quantitative Asset Allocation methods ( http://www.mebanefaber.com/timing-model/ )
Rather than using one or the other alone, again I've looked to diversify and use a intermixed form of 50/50 blend of both PP and Mebane's.
But I've opted to use a bond ladder (spanning 6 years/steps) ( http://www.financialwebring.org/gummystuff/bonds-4.htm ) as an alternative to 30 year (PP) or 10 year (Mebane's) choice of Bond holdings as I believe bonds to be in a relative bubble (JMHO).
I've therefore moved away from AIM like band trading to monthly reviews 40% bands (i.e. 12.5% initial allocations and rebalance whenever any one component exceeds or declines +/- 5% above/below that (7.5% and 17.5% rebalance trigger points).
The Mebane method does additionally trade according to current price relative to its 10 month moving average (similar to 200 day moving average), by reviewing each month and being in when the current is above the moving average or otherwise out for that month if below. For my part I only trade the Foreign (BRIC), Commodities (DBC) and REIT (IPRP) in this manner.
If the next 30 years have as low drawdowns as that for the Mebane and PP figures previously shown that will likely see me out whilst providing investment comfort along the way.
Best. Clive.
PS another link you might be interested in is a UK PP http://www.fool.co.uk/news/investing/investing-strategy/2009/06/29/feeling-cautious-load-up-on-gold.aspx
The limits are that if set to narrow then trading costs eat into the rewards from trading. Set too wide and the levels are never reached.
If you trade at say 1% moves you will have lots of trades, but trade very small amounts, as such trading costs might amount to more than the actual gains achieved.
If you trade at say 50% moves then you'll trade larger amounts and make larger gains per cycle, trading costs will be relatively small to the gains achieved, but you'll trade relatively infrequently.
There is a temptation to trade at 1 standard deviation amounts because graphs of the Bollinger bands (e.g. +/- 1 stdev) look like they are good at predicting, but in practice they are no different to trading at other deviations.
There are optimal bands that if traded produce the best results, however predicting those bands beforehand is as difficult as predicting future stock prices.
As such an investor who trades at say fixed 30% bands will likely compare to another investor who attempts to predict turning points etc. Accordingly trading the simplest approach is sufficient.
It's generally better to focus upon diversification and/or price appreciation potential rather than the technicalities of when to trade.
Many investments achieve comparable longer term rewards, of which bonds tend to be the most stable. Others such as commodities, stocks, REIT's etc. tend to track that reference over the longer term, but periodically encounter bubbles and subsequent bubble bursts. What most investors do however is invest after the bubble has inflated which means that they overpay for the stock. After the bubble bursts the declines can result in investment returns that underperform even cash, potentially over extended periods of time.
Much less frequently are assets truly cheap, but may be perceived as being so following a bubble burst event (when generally the asset has declined from over-priced to more fairly priced).
The best holdings in my opinion are a diverse range of stocks (domestic and foreign), bonds, gold, REIT, commodities and cash. When you hold such a collection in around equal capital value amounts and rebalance periodically whenever any one bubbles then you take profit out of the over-priced and distribute the proceeds across multiple others (in effect lock in the gain).
Such diversity also helps ensure that if you overpay for any one initially, then the subsequent decline in that one of many assets as its bubble bursts is much less than had that asset been held exclusively.
Rebalancing periodically is a must. If you hold through thick and thin then the profit take opportunities are missed. A reasonable choice of rebalance method is a mechanical one as that is more likely to be followed than if left to human emotion based trading.
Increasingly I have personally simplified my investment style having tried ever possible trading and/or prediction method I could think of. My preference now is to achieve market returns with low drawdowns and as such I'm attracted to Harry Browne's Permanent Portfolio ( http://crawlingroad.com/blog/ ) and Mebane Faber's Quantitative Asset Allocation methods ( http://www.mebanefaber.com/timing-model/ )
Rather than using one or the other alone, again I've looked to diversify and use a intermixed form of 50/50 blend of both PP and Mebane's.
But I've opted to use a bond ladder (spanning 6 years/steps) ( http://www.financialwebring.org/gummystuff/bonds-4.htm ) as an alternative to 30 year (PP) or 10 year (Mebane's) choice of Bond holdings as I believe bonds to be in a relative bubble (JMHO).
I've therefore moved away from AIM like band trading to monthly reviews 40% bands (i.e. 12.5% initial allocations and rebalance whenever any one component exceeds or declines +/- 5% above/below that (7.5% and 17.5% rebalance trigger points).
The Mebane method does additionally trade according to current price relative to its 10 month moving average (similar to 200 day moving average), by reviewing each month and being in when the current is above the moving average or otherwise out for that month if below. For my part I only trade the Foreign (BRIC), Commodities (DBC) and REIT (IPRP) in this manner.
If the next 30 years have as low drawdowns as that for the Mebane and PP figures previously shown that will likely see me out whilst providing investment comfort along the way.
Best. Clive.
PS another link you might be interested in is a UK PP http://www.fool.co.uk/news/investing/investing-strategy/2009/06/29/feeling-cautious-load-up-on-gold.aspx
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