There is an old saying that Markets go up - Markets go down but in the long term the Markets will always going up. However, the reality is that for the last 10 years, this saying may no longer valid.

Let’s look at the Chart 1 showing NDX, which is Nasdaq 100 big-gest companies index from 1990 till present. If you have bought NDX at its peak of 4,816 in March 2000, you will still be in the red today, 10 years later.

Using

Even if you have sold at the peak of the last Bull Market during 2006 with the NDX hitting its high of 2,242 - you would registered a significant lost of 54%.

In today volatile markets, buy – hold – prayer may no longer be a good idea for any investment portfolio.

Many investors rely solely on Fundamental Analysis for invest-ment selections, it may be not recommended in current investment

Technical

In Your Analysis

Investing By Thomas Saw

CHART1

ISSUE 16 INVEST AUG/SEPT 1028

TA

CT

ICA

L IN

VESTMENTS

environment unless you have the resources & expertise like Buffett with his experience and long term investment time horizon.

Fundamental Analysis (FA) is just the first step towards the selec-tion of suitable sector or counter for investment.

Technical Analysis (TA) are the tools that enable us to enter and exit investments at suitable prices. Hence, we need to combine FA with TA to reduce risks and enhance returns in our investments.

In this article, I will share a simple TA method that may reduce risk and achieve better returns by showing suitable time – price to buy and to sell for your investments.

This method consists of three Exponential Moving Average Lines (EMA) which signals suitable entrance & exit price points: The EMA lines are 60 EMA, 180 EMA and 360 EMA. EMA is used because more weight is given to the latest price movement data, which is crucial in today volatile markets with its extreme price movements.

The objective of this method is to reduce positions as the market go down and to increase positions when the markets recover.

Portfolio Sizing:If your investment portfolio consists of only 100 lots of the EEM, you can divide the investment into 3 Parts:

• Part 1 consists of 30 lots - 30% of investment • Part 2 consists of 40 lots - 40% of investment • Remaining of the 30 lots should be retained in the market.

As the EEM price drops, the 60 EMA breaks down past the 180 EMA line, triggering a sell signal for Part 1 order of 30 lots. You will then sell 30 contracts X $44 = $132,000 with remaining 70% of your invest-ment in the market. If the market continue to drop with the 60 EMA break thorough the 360 EMA, this will trigger a sell signal for Part 2 order of 40 lots . You will then sell 40 contracts X $41 = $164,000 with the remaining 30% of your investment in the market. Your position will then consist of $296,000 cash with 30 contracts of EEM. With the cash position of $296,000, you will be a better to take advantage of investment opportunities when the market recovers.

When the EEM turn bullish and the 60 EMA break thorough up-wards of the 180 EMA line, this trigger the buy signal for Part 1. With the EEM trading at $29, this means that you can buy 45 lots of EEM with the $132,000 cash from Part 1 sales. When the 60 EMA breaks through upwards of the 360 EMA line, this will trigger the buy signal for Part 2. At this time, with the EEM trading at $32, you can buy 51 lots of EEM with $164,000 cash from Part 2 sales.

Now your EEM position is 126 contracts as compared to the previ-ous 100 contracts if you use the traditional buy-hold method.

With the extra 26 contracts in your portfolio, you should be able to achieve better returns.

Portfolio Sizing:If your investment portfolio consists of 10 lots of IFL, you can divide the investment into 2 Parts:

First Example: EEM is an ETF that track MSCI Emerging Markets Index that is designed to track equity market performance in global emerging markets.

ISSUE 16 INVEST AUG/SEPT 1030

• Part 1 consists of 4 lots - 40 % of investment• Part 2 consists of 6 lots - 60% of investment As the IFL price drops, the 60 EMA break down past the 180 EMA line, triggering a sell signal for Part 1 order that consists of 4 lots. You would have sold 4 contracts X $47 = $18,800 with balance 60% of investment still in the market.

If the market continues to drop with the 60 EMA breaking thor-ough the 360EMA, this triggers a sell signal for Part 2 order that con-sists of 6 lots. You would have sold 6 contracts X $43 = $25,800. Your position will then consist of $44,600 cash with no positions in IFL. With a cash position of $44,600, you may be in a better position to take advantage when the IFL turns bullish.

When the IFL turn bullish and the 60 EMA break through upwards of the 180 EMA line, this will trigger the buy order for Part 1. IFL is trading at $31 and your Part 1 purchase order will cost $18,800, this means you can buy 6 lots of the IFL. When the 60 EMA break thorough upwards of the 360 EMA line, this will trigger the buy order for Part 2. This time, IFL is trading at $33 and your Part 2 purchase order will cost $25,800, this means you can buy 7 lots.

Now your IFL position is 13 contracts as compared to the previous 10 contracts if you use the traditional buy-hold method. With the extra 3 contracts in your portfolio, you should be able to achieved better returns.

However, do note that this method is not suitable for highly

volatile stocks, as it will generate too many buy–sell signals.

CONCLUSION

Within the limitation of this article, I hope that this simple TA method will aid you to become a better investor. However, theory will only go so far, you will also need to have executable trading skills and the requisite discipline when using TA methods. I would like to invite you to join us at Traders Round Table where a small community of traders – investors that seek to help fellow traders – investors to be more empowered in today’s markets.

Interested to know more details of the above method, please email tsaw@live.com for a discussion. Visit us at www.TradersRoundTable.com.sg for details of the community.

Thomas Saw is founder of Traders Round Table, which is a small community of traders – investors that seek to help fellow traders – investors to be more successful in the markets.

Example 2:IFL is an ETF that track S &P Latin America 40 index which is designed to track South American equity markets performance like Brazil, Chile, Mexico, Peru etc

Y O U R I N V E S T M E N T I N S P I R A T I O N S 31