Please read the Disclaimer before you proceed with the rest of the article.
This portfolio is a mock-up model to test the investment thesis of the author for illustrative and educational purposes. The stock transactions in this portfolio may or may not reflect the actual actions of the author.
Monthly TA Investment Portfolio
During bull markets, very often, one may miss out on strong uptrending stocks as the prices just get higher and higher. Waiting for lower entry price may never materialize in the short to medium term unless major business issues or black-swan events happened.
I’m creating an experimental portfolio to test the hypothesis of using
Technical Analysis (“TA”) for timing entry into strong trending stocks to take
advantage of the temporary price corrections or pause in momentum to get into
the train wagon to invest in blue chip stocks (e.g. index component stocks) or
fast growing stocks when the bullish trend resumes - TA Investing.
To keep things simple, the following criteria for forming TA Investment Portfolio will be used:
1. Stocks were previously in uptrend or bottoming formations is forming.
2. Blue chip stocks and growth stocks (and situational turn-around stocks may also be selected). Blue chips and growth stocks on uptrend are selected on the premise that they are fundamentally strong stocks.
3.
Enter at breakout of temporary downtrend, resistance
line or bullish formation or signals.
4. Protect capital, keep the losses small.
(a) Set initial entry month stop-loss level at an
arbitrary 5% below entry price or major support subject to a maximum loss of 5%
from entry price. Stop-loss for the subsequent month may be reset based on support/resistance levels.
(b) Weed out weaker stocks, keep the winners, and let the winners run. If there is eminent change of trend in the general market to bearish market, some or all positions may be closed.
5. Time frame and profit target may not be
initially fixed. Exit when major bearish formations or signals are formed or
signs of eminent change of trend.
6. Transaction costs are disregarded.
Total capital: S$100,000
Amount to invest each time: S$5KSize of portfolio: 10 – 20 stocks
Benchmark: MSCI World Index
As this method entails using TA as a primary tool to increase
the probability of successfully getting vested in fundamentally strong and
bullish stocks on a portfolio basis, we will try to achieve reasonably large population of transactions over
time so that the Law of Large Number can be applied.
Notes:1. This model is intended for getting vested into both fundamentally and technically strong moving stocks and not intended for short-term trading.
2. While outcome of the test may dependent on the author’s TA skills, the TA used are the commonly applied methods, such be trend following, indicators, support & resistance, price actions and volume. TA Scores (out of a max of 9, being the strongest) are awarded based on the author’s subjective view of strength of the TA based on those factors. It is not the intention of this exercise to dwell on the details of the TA basis at this point. Over time, rule based TA signals may be developed for consistency test.
3. Valuation of stocks may be a factor but not the final consideration for buying the stocks.
Click LINKS below to view Monthly TA Investment Portfolio