Tuesday, December 14, 2010

Slow Trades

In my posting on the India country fund EPI, I mentioned the possibility of using the strategy of slow trading to mitigate the effects of the lack of knowledge.

The idea is that any stock that can meet the entry rules for slow trading is strong enough on the upside to overcome most unknowable surprises.

As it turns out, there are two stocks on my Watchlist that candidates for slow trades.

First, here are the rules:

My strategy for slow trading uses the 50-day moving average (a quarter) and the 200-day moving average (a year). It has these rules:

a) When the 50-day moving average crosses above the 200-day moving average, open a bull position.

b) When the 50-day moving average crosses below the 200-day moving average, either move to cash or open a bear position.

The short version: 50-day-ma above the 200-day ma = bull phase. 50-day-ma below the 200-day ma = bear phase. Simplicity itself. It is important to note that new positions should be opened at the time the signal is given. If the stock is in the midst of a phase, then keep your money on the sidelines until a new phase kicks in.

For my own account, I tend to trade the bull side only, as I find that to be more reliable over the longer term.

In the Earnings Plays section of the Watchlist, PAYX had a bullish crossover today. I had declined to open an earnings play on the stock because of a paucity of earnings surprises, but that's no barrier to opening a slow-trade position.

On PAYX, I'd be happier if the 200-day moving average was in an uptrend. It's essentially sideways at this point, perhaps on the verge of turning up after a slide from last June.

INTC, which I sold yesterday on a switch to bear phase 12¢ away from a crossover. It will come within a few weeks.

I have one slow-trade position in my portfolio: SPY, on a crossover lat October. The price has gained 9% since then.

Slow trading may well be the answer to the problem addressed in my recent essay, The Myth of the Income Play. It provides a place to park money for the long-term, without a need for active management, and without the risks that come with opening positions based solely on the size of the dividend.

Tim Bovee, Private Trader tracks the trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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