Different chart patterns mean different tactics

Head table

ValueTrend recently sponsored a discussion panel (sponsored in part by BMO) featuring

  • BMO’s market strategist Steven Shepherd,
  • MP Alex Nuttall Opposition Critic for the new Sharing Economy, as well as Deputy Critic for Innovation, Science and Economic Development,  
  • Myself.

 

The panel was interesting because it combined the comments from Steve’s perspective as an asset allocation and macro view analyst with Alex’s viewpoint from an economic policy and political perspective, along with my own technical trend and sentiment work. Pictured here is ValueTrend’s own Craig Aucoin, introducing the speakers.

 

One of the questions that came out of the meeting was regarding gold. Interestingly, Steve and I shared the view that gold is generally a crumby investment, but a suitable – even profitable-  trading vehicle. You’d expect a guy like me to say such a thing, but Steve tends to take a bigger picture longer view on markets—he’s the guy that would tell you to hold equities through a longer cycle – rather than finesse the entry and exit points as I would. Yet, he acknowledged the fact that over the long term, gold has been amongst the worst investment classes to own – and should only be traded. I’ve posted two charts below. One is that of Google – a stock that we own in the ValueTrend Equity Platform. We view Google as a relatively long termed hold- given its intact trendline and dominance in its industry. You can see on the chart that Google is best bought on a dip as it approaches the trendline – or within one of its many sideways consolidation periods. Long termed investors have profited by holding Google, and really didn’t need to trade in and out of the position.

googl

 

Gold, on the other hand,  is a trading vehicle as evidenced by the downtrend and choppy pattern.

gold

 

This viewpoint got me thinking about bicycle racing – something that a few of you may be aware that I have been enthusiastically involved with for many years. Like approaching tradingNewmarket TT Sept 8 2016 patterns, bike racing has many different disciplines that must be trained for. For example, one type of race that I like to do is time trialing. This discipline involves tucking in on a very aerodynamic bicycle wearing a skin suit and an aero helmet. You remain in a rather uncomfortable position and hold a consistent speed and power output for the entire event. Each racer is separated by 30 seconds off the start, so you are really just racing against the clock – you are very much alone with your fatigue and pain in a time trial race. There are few strategies that can give you an edge in time trialing beyond aerodynamic body positioning and the ability to hold  a consistent effort as the miles creep by.

Trade trending stocks like a time trial

Like investing in Google, a steady effort without too much variation in strategy will win the game. Long distance bike racers and ironman competitors will share a similar strategy as time trial racers. The photo above was my final time trial of 2016 – taken by my coach Ed Veal’s lovely partner Jessica Puddifant. I had a rotten race that day – but the photo does a good job of illustrating the position, and the isolation of this race.

 

 

c50 4Traditional road races – which I also compete in – involve much more strategy, deft maneuvers and explosive efforts. In order to win a road race, it’s pretty hard to get ahead of a large pack of riders. Drafting behind each other and taking turns at the front affords the pack a high rate of speed for their collective effort. Going it alone in the wind rarely wins races. So road races are usually won in two ways. Either in a pack sprint at the end of the race—where the sprinters can explosively win by taking on the risk of high speeds while avoiding touching another riders wheel. Or, earlier in the race by breaking away from the larger pack on a hill or through a corner with a few other cooperative racers. This again involves deft timing, and the ability to move explosively to drop and discourage the pack from catching you and your little band of fellow risk takers. Either way, road racing is not at all like time trialing – its more about strategy and periodic bouts of explosive power executed in a timely manner. The shot to the right shows me in the pack at the 2016 Centurion Race.  As you can see – its a big pack riding tightly together. You can’t just “ride away” from a pack of 100 fit, aggressive racers. It’s all about timing!

Trade gold like a road racer

Gold, as you can see on the chart above,  is clearly in a downtrend- and has been since 2011. However, gold has had plenty of counter-trend rallies that offered smart traders great opportunities to play the blips. I noted an upcoming opportunity in my December blog for gold–and targeted a trade to $1200 with higher risk after that level. It appears that I was correct in that trade. Buying and holding gold has been rather disastrous for investors over most longer termed periods of time. Clearly, quick thinking and a willingness to jump in and out of gold has been the only way to go for several years. Just like the quick decisions that bike racers make.

 

Assess the pattern of a stock or security and then decide if you need to act like a time trailer or a strategic road racer when investing. As with bike racing, you cannot invest successfully if you are employing the wrong tactic for the race.

 

Keith Speaking in Toronto on Saturday Feb 4th at 11:00AM

I’ve been invited to conduct a workshop on the basics of my methodology for trading stocks. Readers are welcome to attend. Details below:

Location: Questrade
5700 Yonge Street
Toronto, ON M2M 4K2
11:00 AM – 12:30 PM EST

Here is the link: – bit.ly/TorontoMeetup

moneyshow-1

3 Comments

  • Keith,

    I agree, that’s a good analogy. How about adding something about sizing up your competitors in a race to help in the decision (among other factors) as to when to attempt a breakaway…..and comparing it to the analysis required as to when to buy and sell a stock?

    Reply
    • Spoken like a true cyclist, John
      Yeah, I could have added much more to the bike racing analogy, but would have bored the readers methinks…just me, you and a dozen other roadies who read this would have enjoyed more detail!
      Thanks for the comment!

      Reply
  • I very much enjoyed your blog and sent it some friends. And thank you again.

    Reply

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