Technical analysis for Long Term Investing . TA system tell the investors when to Get OUT and when to Renter the markets for their long term investment.

1. TACTICAL INVESTMENTS
Using
Technical
Analysis
In Your Investing
By Thomas Saw
There is an old saying that Markets go up - Markets go down but in
Even if you have sold at the peak of the last Bull Market during
the long term the Markets will always going up. However, the reality
2006 with the NDX hitting its high of 2,242 - you would registered a
is that for the last 10 years, this saying may no longer valid.
significant lost of 54%.
Let’s look at the Chart 1 showing NDX, which is Nasdaq 100 biggest 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.
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 investment selections, it may be not recommended in current investment
CHART1
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ISSUE 16 INVEST AUG/SEPT 10

2. First Example: EEM is an ETF that track MSCI Emerging Markets Index that is designed to track equity market performance in global
emerging markets.
environment unless you have the resources & expertise like Buffett
As the EEM price drops, the 60 EMA breaks down past the 180 EMA
with his experience and long term investment time horizon.
line, triggering a sell signal for Part 1 order of 30 lots. You will then
Fundamental Analysis (FA) is just the first step towards the selection of suitable sector or counter for investment.
sell 30 contracts X $44 = $132,000 with remaining 70% of your investment in the market. If the market continue to drop with the 60 EMA
Technical Analysis (TA) are the tools that enable us to enter and
break thorough the 360 EMA, this will trigger a sell signal for Part 2
exit investments at suitable prices. Hence, we need to combine FA
order of 40 lots . You will then sell 40 contracts X $41 = $164,000 with
with TA to reduce risks and enhance returns in our investments.
the remaining 30% of your investment in the market. Your position
In this article, I will share a simple TA method that may reduce risk
will then consist of $296,000 cash with 30 contracts of EEM. With the
and achieve better returns by showing suitable time – price to buy
cash position of $296,000, you will be a better to take advantage of
and to sell for your investments.
investment opportunities when the market recovers.
This method consists of three Exponential Moving Average Lines
When the EEM turn bullish and the 60 EMA break thorough up-
(EMA) which signals suitable entrance & exit price points: The EMA
wards of the 180 EMA line, this trigger the buy signal for Part 1. With
lines are 60 EMA, 180 EMA and 360 EMA. EMA is used because more
the EEM trading at $29, this means that you can buy 45 lots of EEM
weight is given to the latest price movement data, which is crucial in
with the $132,000 cash from Part 1 sales. When the 60 EMA breaks
today volatile markets with its extreme price movements.
through upwards of the 360 EMA line, this will trigger the buy signal
The objective of this method is to reduce positions as the market
go down and to increase positions when the markets recover.
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-
Portfolio Sizing:
If your investment portfolio consists of only 100 lots of the EEM, you
ous 100 contracts if you use the traditional buy-hold method.
With the extra 26 contracts in your portfolio, you should be able
can divide the investment into 3 Parts:
• Part 1 consists of 30 lots - 30% of investment
Portfolio Sizing:
• Part 2 consists of 40 lots - 40% of investment
If your investment portfolio consists of 10 lots of IFL, you can divide
• Remaining of the 30 lots should be retained in the market.
30
to achieve better returns.
the investment into 2 Parts:
ISSUE 16 INVEST AUG/SEPT 10

3. 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
• 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
volatile stocks, as it will generate too many buy–sell signals.
CONCLUSION
line, triggering a sell signal for Part 1 order that consists of 4 lots.
Within the limitation of this article, I hope that this simple TA method
You would have sold 4 contracts X $47 = $18,800 with balance 60%
will aid you to become a better investor. However, theory will only
of investment still in the market.
go so far, you will also need to have executable trading skills and the
If the market continues to drop with the 60 EMA breaking thor-
requisite discipline when using TA methods. I would like to invite
ough the 360EMA, this triggers a sell signal for Part 2 order that con-
you to join us at Traders Round Table where a small community of
sists of 6 lots. You would have sold 6 contracts X $43 = $25,800. Your
traders – investors that seek to help fellow traders – investors to be
position will then consist of $44,600 cash with no positions in IFL.
more empowered in today’s markets.
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
Interested to know more details of the above method, please email
of the 180 EMA line, this will trigger the buy order for Part 1. IFL is
tsaw@live.com for a discussion. Visit us at www.TradersRoundTable.
trading at $31 and your Part 1 purchase order will cost $18,800, this
com.sg for details of the community.
means you can buy 6 lots of the IFL. When the 60 EMA break thorough
Thomas Saw is founder of Traders Round Table, which is a small
upwards of the 360 EMA line, this will trigger the buy order for Part
community of traders – investors that seek to help fellow traders –
2. This time, IFL is trading at $33 and your Part 2 purchase order will
investors to be more successful in the markets.
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
YOUR INVESTMENT INSPIR ATIONS
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