| Tip of the Week |
 |
 |
"Always analyze a security in conjunction with others in its relative market."
|
|
Deciding Between Two Picks |
|
|
|
|
|
Monday, 30 July 2007 |
The Basics
To pick the best investment strategy, you must understand your needs, wants, and capital. Are you a short term trader, long term trader, is your available capital to invest limited, are you willing to be more risky or conservative with your portfolio, etc.
Most technical traders tend to be short term traders; they either enter and exit before the trading day ends, or they realize the movement of a particular security is only temporary. But that is the nature of technical analysis.
If you aren't one who speculates based on chart patterns, most likely you are a long term trader. If that is the case, valuation techniques are needed. These techniques can include anything from who is running the company, where did they receive their education from, can you predict the next years growth based on this years, how does this company perform when compared to other competitors, etc.
But what is most important regardless of any duration of trading is how much capital you have, and how much you are willing to risk.
The Next Step
Following your decision on your goals as an Investor, you have to make the most crucial decision as an Investor - how much capital can you invest, and how much are you willing to risk.
As a rule of thumb, we suggest that you invest no more than 10% of your capital. This leaves sufficient room to play with more money when you lose (every Investor has some losses.)
If you are a new Investor and/or have limited capital to invest, most likely you fall on one of the extremes as an Investor: you are either willing to be very risky, or very conservative. Risky investments can be anything from options, futures, and penny stocks to stocks or commodities that are volatile and have no distinct trend. If you are a conservative investor, most likely you will be looking into mutual funds, well established companies, etc.
The Big Decision
But what happens when you know your investment style, but are stuck between two particular investments that interest you? The deciding factor for which is the better investment technically will be the one with:
- Increasing Volume
- Trending and less volatile than the other choice
- Increasing MFI with a higher slope
- Which investment is at a lower low
Points 1,2, and 3 speak for themselves. Point 4 will most likely be the deciding factor however. By examining for the lower low, you will be leaving room for which investment will have the larger potential for growth.
Conclusion
When you are stuck between two investment opportunities, chose the one with the more distinct extremes: The one with the larger slopes, the more volume, the lowest low, the faster velocity, the more demand, etc.
Naturally, this seems quite redundant. You are probably thinking to yourself "I already knew this." But surely you didn't, otherwise, you wouldn't be stuck between two great opportunities!
|
|
|
|
|
