Learn about using fundamentals for entry signals into your portfolio, and create an appropriate entry strategy for a medium term investor. That, and all at MarketVision awaits you.
Many of you have written back after last week’s newsletter asking about creating entry signals. Stocks go up and down every day; how does one ever figure out what we should buy?
Let’s first understand the time-frame. We want to figure out “good stocks”. Good, for some of you may mean that the stock will go up intraday, so you can buy in the morning and sell in the afternoon. But to others who don’t have the time to be a terminal gazer, it might mean a year from now or indeed many years from now.
What is an entry strategy?
Now let’s say you’re an arbitrageur. You want to buy stocks and sell futures and profit from the difference. There are indeed stocks that veer away from their future prices, sometimes intraday, and come back. There are some profits (probably very light) to be made from such trades. The entry process for the arbitrageur would be:
1) Get all the stock and future real time prices
2) Have a program that calculates the difference in real time
3) Alert me if a tradeable opportunity, post transaction costs, comes by.
4) (Or better still, automatically take the trade – the realm of algorithmic trading)
For the really long term investor the entry process might be:
1) I don’t have time for an entry process
2) I’ll just buy a diversified mutual fund every month.
3) Which one? Just go to value research once a year, pick the best fund and put money in it every month. No need for anything more frequent.
Entry strategies are different for different kinds of investors. I’m going to assume you’re a medium term investor – that the 1 to 3 year time frame excites you. For this, we’ll use a combination of fundamentals and technicals. That is, stocks that have good financial history or prospects, and where the price is showing strength as well.
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