Real Estate Relative Strength Analysis

Real Estate is a red hot topic in Singapore.  Many people have diverse opinion whether the government intervention in Jan 2013 will finally cool the industry, or will there be a further cooling measures if this segment continue to defy common sense.

Real Estate sector is very broad.  Note that I still quite heavily vested, both in reits as well as ordinary stocks.  I wanted to know if I was vested in the right segment, and if necessary, to switch my horses.

First I manually created indices from the real estate stocks available in Singapore.  Then I use traditional TA based on moving averages and MACD oscillator determine the relative strength of each segment of the real estate sector.

I shall start with the weak to the strongest.

As expected, the Singapore Residential segment is one of the weakess.  The strongest are the Commercial and Hotel segments.

I believe in getting rid of losers and investing in the strongest.  I will need to switch my horses.

China

SG, Residential

Asia

HK

Industrial

Retail

Hotel

Commercial

A look at the Construction Sector

I have been wanting to invest in Construction companies in Singapore.  Somehow, I missed the earlier boat.   All over the Singapore, including the public roads, there seem all kinds of construction and civil engineering works.  Morever, according to our government, there seems to be no end to improving our Singapore.
Below is attached is an index of 24 Contruction Stocks that I created.

It is consolidating now at the 55 SMA.
After studying the charts and fundamentals of the list of 24 stocks, I eyeing at the following 3 stocks:
1) KSH Holdings
2) Lum Chang
3) Low Keng Huat

Preparing to long China ETF

Since my last post on 21 Feb, both the China ETF and Shanghai Stock Exchange has retraced to its 61.8 fibo level.  If this week closes with a nice white candle, the idea is to look for opportunities to long next week.

Note that this is a counter-trend trade, and against the downward momentum.  The main reason to support this trade is the sexy story that with a new man in charge the strongest economy in the world, the downward spiral of SSE has ended.

No Short Cuts

The comment below is not to shame anyone but to express my feelings:
I received an email from a vectorvest user that made me very sad. The person subsribed to vectorvest about a month ago, started trading real money with it, and promptly lost a sum of money via cutting loss within contra period.
For anyone who wants to stand any chance of not losing money in the long run, the following is non-negotiable. With software tool or no software tool, anyone who is successful in the long run is doing the following, or something similar:

1. Follow timing signals. Most important rule.
2. Write down your trading plan. Fail to plan, plan to fail.
3. Define and follow money management rules....example : risk only 1% of your trading equity for each trade. Better to be rich slowly than poor fast.
4. Review past trades. do not make same mistakes again
5. Backtest, or/and forwardtest for a time period. Determine your probability of each trade, maximum drawdown, expected or average profit per trade, maximum loss, minimum loss
6. Adapt trading plan to changing market conditions when necessary
7. If buying, search for strong stocks. Least important rule.

There is no short cuts.

STI's ominous Shooting Star

The daily chart of the STI certainly looks bearish in the short term.  On Monday, there was a ominous shooting star. See the circled red color.  The pattern seems to be developing into a triple top, also a bearish formation.

What do I make of these developments?  I have chosen to let the market do what it does.  I will still stick to my trading plan.  I have not taken profits for my long position.

Backtesting

Yesterday, on a Sunday, I participated in the VectorVest Precision training workshop held in M Hotel.  About 150 people turned up, which was a full house, as the room that was booked was pretty small.  I was there, sharing on the topic of Backtesting.

I shall here put on this blog as an appetizer of what I shared during the event.

What is backtesting?  

To backtest, means to apply the trading signals of your trading system on past historical data. Most of the time, patterns repeat itself.  Past patterns that has worked in the past, may work in the future.

Backtesting forms an important part of my trading methodology. By knowing which strategies work well in the past, I will know which strategies have a higher likelyhood of working going forward.

What do we want to determine through backtesting?

The most important data that we need to know about our trading system are: 

1. the total gains vs total loss %
2. the number of of winners vs losers
3. the total number of trades
4. the maximum drawdown
5. Largest win vs largest loss

If you were to have the above information about your system, you will have a pretty good idea

1. of the expected annualized return of your trading activites
2. of the probability of winning for each trade you take
3. of the estimated number of trades you will be taking for the coming day/ week /month/ year, matches your trading psychology
4. of the downside risk to your total equity in trading the system
5. if your system is able to ride winning trades, and cut losers short 

Overcoming fear of pulling the trigger
I recalled, that there was once a time where I could not pull the trigger.  As I think back, there were many reasons for it.  Many trading psychology books has written about it.  I was a classic case of someone suffering from fear of losses.  It drove me nuts for a while.

Reading trading books, trading courses, were unable to help me.  Most of them do not reveal their backtest data.  The problem, I realized, was within me.  I got over that stage by doing extensive backtesting.  Eventually through backtesting, I became confidant in the eventual success of my trading systems.  This enabled me take every trade, knowing that even if I were to suffer consecutive losses, profitability will likely return in the long run.

Most trading software and systems sold do not have a backtest feature.  Even if it has, it is extremely difficult to use for a typical retail trader as they will likely require programming skills.

How do I backtest nowadays?

I am using VectorVest to backtest.  The great thing about it is that it is really just pointing and clicking through a wizard to generate the backtest that I want.  I can even test stops such as trialing stops, which is a pain to backtest via visual or manual backtesting through excel. See screenshot of the possible stops for backtesting.

Note : I am not paid for recommending VectorVest, nor am I earning any commission from their sales.

Mutiple Stocks (Industry) Analysis

Both Charles Dow and Jesse Livermore observed herd behavior in markets.  On the charts, this can be seen  the broad market pulling individual stocks in the same direction.  A large portion of an individual stock's direction is attributed to the market's action, and only lesser fraction is attributed to the stock itself.
For the past year, I have been timing my trades based on a larger group of stocks.  The advantage of timing my trades in such a way has the following advantages:

1. A chart of a group of stocks is often less choppy.  Basing my actions on a less choppy chart reduces the whipsaws that I that may encounter had I chosen to trade based on a single stock chart.
2. Timing my trades based on a group often result in the trade responding rapidly to the changing market conditions.  This is because a group of stocks is basically, an asset class, a sector, an industry, or even a country.
3. Basing my trades based on an external, broader, market gives me a stronger mental justification for holding a position.  My belief in the stock is complemented by other stocks moving in the same direction.  That means that multiple stocks in the same industry is being bought, thereby increasing the momentum of the move.

Lets take a look at 2 examples.
I have a created a chart based on the arithmetic average of DBS, OCBC, and UOB.

The banking stocks have broken out and are making new highs.  I am happy to hold my positions, and will not be taking any profits yet.  As a trend follower, I must not put a cap on how high it can go.

Now, let look at a chart of 6 stocks: Golden Agri, Olam, Noble, First Res, Wilma, Indofood.

As a trend follower, I will stay away from buy any of these stocks until it break out of its trading range.