top down approach chat/lesson

sefty

Active member
114 3
From the chat room on 31st Jan 2001-01-31

The below does not constitute financial advice is the opinion of the speaker. As always you must do your own research in any stocks or style of trading you use.

shall we do some learning

The stock market operates at several levels, say ftse100, sectors, stocks. Think of the market as if it were the sea, the sea is the ftse or techmark, the sectors are the harbours and the stocks are boats on the harbour.
what happens when the tide goes down,what happens to the water in the harbour
<Guesty> it falls
<sefty> yep and the boats in the harbour also fall
so when you buy stocks at the moment do you look at the sea and harbour first or do you just look at the stock
Most look at the stock this is a very normal investor method.
If you look at stock first this is called a BOTTOM UP APPROACH
If you do it the other way its called a top down approach
Lots of people look at the stock and never at the sea
so when the sea rises some harbours ( sectors ) rise more than others and so is the same with some stocks
<felixakulw> surely they are inextricably interrelated - the stocks and the ftse or whatever
yer but some move better on the rise of tide, what makes them rise better
<sefty> VOLUME
<sefty> and also some are helped with the news flow etc
so you can use top down approach to give you a set of strong sectors and strong stocks within those sectors
<sefty> if you have a list of strong sectors and strong stocks in those sectors you better your chance of rising
so how do we select strong sectors
ok you can do top down using the web for free or pay lots of money to get a software package
i have in the past used this site http://focus.comdirect.co.uk/en/quick/uk/index.html
we can go through a selection routine if you want
<sefty> please click on the web address
we sort out strong sectors by comparing the sector with the ftse100
if we do not outperform the ftse we might aswell put our money into a ftse100 tracker
so we need to compare the sectors with the ftse 100
so at the comdirect site select uk sectors
<Happy_Chappy> over what period do you use a benchmark
<sefty> 1 yr or 6 months depends on what strenght you want your stock
<sefty> ok lets try out a sector chose tobacco, click on the chart icon 2nd square in
change the chart to show one year
<sefty> ok then scroll down to benchmark in extra info part
<sefty> ok when you got there put in ftse100 as your bench mark and click on update chart
<sefty> ok so how does it compare
<Happy_Chappy> very good, wish I had taken up smoking
<Guesty> favourably i'd say
<sefty> ok how many people here have ever bought tobacco stocks
<Happy_Chappy> nope
<Guesty> not here
<sefty> when you do this style of analysis it takes away the sentimentality and gives you clear data
<sefty> ok next part is to go back to main list of sectors should be 3 clicks back
<sefty> ok nxt to the tobacco sector you see a little box before charts with 6 squares, click it
<sefty> ok should show all tobacco companys, ok scroll along to far end and click on SHARES TRADED
this will sort out the shares in order of volume.
we do that cos the rule is DO NOT TOUCH stocks that do less than 300k daily vol
<sefty> unless you like penny stocks and big spreads
<sefty> other wise you might never get rid of them
<sefty> ok when you done that click on the chart for the top one BR.AMER.TOB ORD 25P
<sefty> ok when the chart is up change it to 1yr and then go to benchmark but this time compare it to its own sector.
<sefty> ok how does it compare to the sector
<sefty> kind of tracks it but not massively below
<sefty> ok so we are ideally looking for those that outperform their own sector
<sefty> but tracking an outperforming sector would still be ok
<sefty> so at this point we have gained 2 things
<sefty> 1 we know that the tobacco sector currently way outperforms the ftse100
<sefty> 2. that if we go through the stock that do over 300k we can find which are outperforming that sector
<sefty> this gives you at the end of the process a list of strong sectors and strong stocks
<Happy_Chappy> how often do you evaluate sectors
<sefty> once you have these you should learn their support and resistance
<sefty> well i use aiq software so i do it weekly but before i got it i used to do this monthly
<sefty> takes time and gives you a big list but mostly the sectors don't change that much
<sefty> the point is people if you want to beat the market you have to use analysis
<sefty> it takes away some of the risk
<sefty> well http://www.investtech.com/ this site is good
<Happy_Chappy> i use invetsech, i just like the look of comdirect
<sefty> you don't have to day trade to make good money, sometimes you are better off weekly trades
<sefty> you must though have an aim say 5% per month so when you make that on a trade get out
<Happy_Chappy> sefty You were going to give an insight into resistance and support
<sefty1> ok so what is resistence
This is the level that the stock does not seem to be able to rise through
<Happy_Chappy> where the stock reachs a point on the chart where selling moves the price down as volume decreases
<sefty1> yes but remember that the chart is only a map of what is going on.
<sefty1> how do we find it, we look at the price history
<sefty1> when you think of it like that then resistence and support becomes easier to think about
<sefty1> so what is support then
<Guesty> where people find the stock cheap enough to buy
<sefty1> the more times a price hits these two levels the more it is likely to because its history repeating
ok so when you know the support and resistance you know when something is a bargain and when its over the top and should be sold.
for example at the moment Marconi
<sefty1> this stock has a really strong support at 635 mostly bounces of 650
If you know the support and resistance of a stock that way you will pick up bargains now and then
<sefty1> so any questions
<Happy_Chappy> stocks such as moni, why the big drop from the stock trading in the 900 to1000, and now it trades in the 650s to 750s, nothing changed fundamentaly
<sefty1> again the tide is falling, you have to look at it in context of market
<sefty1> we all want a bargain
<Guesty> ah, right, its all making sense now
<Happy_Chappy> I suppose so,the sector is out of favour, and people are frightened of anyhting tech, although moni is slightly different it suffers
<sefty1> stock always changes thats why you have to constantly watch for change
<sefty1> yes and don't forget the wider economic picture
<Happy_Chappy> true, but it is the speed of change which appears a lot faster
<sefty1> yer frightening
<Happy_Chappy> it is that which has caught me out
<Happy_Chappy> I would love to learn charting, I have read one book and looking for another
<sefty1> well you have to learn to use your knowledge to get rid of the emotions
<sefty1> what 2 emotions drive the market
<Happy_Chappy> fear and greed
<sefty1> yes
<sefty1> combat those through knowledge and you will buy when others are panicing sell when others are greedy
<Happy_Chappy> not trend be your friend
<sefty1> most traders here use those emotions to make money
<sefty1> also when certain sectors are flying start looking at what is falling for tomorrow they could be your bargains and they will rise
<Happy_Chappy> besides picking some winners or saturdays lottery numbers, thanks you have been very helpful
<sefty1> no probs, everyone here is at different levels, we all have started out knowing little all we ask is that if you can help your fellow trader do so

The more you learn the more you earn
Sefty
 

ChartMan

Legendary member
5,580 46
I want to thank you for taking the time last night to do this, and to post the notes here. I'm sure there are a lot of traders out there that just don't realise the imortance of this approach.....
 

titus-uk

1
291 5
Fantastic stuff. I find that at my stage I learn ABC, and by the time I get to XYZ, ABC is at the back of your mind. Good to be reminded at times like this........thanks
Mark
 

ChartMan

Legendary member
5,580 46
It's not just you titus- we all need refreshers from time to time- there's so much knowledge out there, however basic or complex.
 

Guesty

Member
55 1
BIG thanks......

Sefty,
i'd just like to take this opportunity to thank you for your effort, patience, expertise and time to teach us newbee's the art and fundamentals of trading. This, i have no doubt, will have saved me many days, weeks, even months of painful 'head banging', money losing trades.

Respectfully
Kev
 

sefty

Active member
114 3
boot camp

Kev
thanks for those kind words. We do this because we have all learnt the hard and expensive way. Much of what we discuss in the boot camp is our own experience. This does not of course make us experts, if it is meaningful to you, great. Much of it is our attempt to save you time. As you may be aware we shall be doing regular chats every wednesday night at 8.00pm. I hope to see you there and hope that people gain from the experience. But most of all i hope it puts some background to your trading ability. See you on wednesday hopefully.

Sefty
 

Riz

Experienced member
1,266 5
Agree with the others..our sefty is quite nice and helpful..the only problem is this convict and his finger..intimidating..don't you think? :)

rizgar
 

sefty

Active member
114 3
Riz your right he is a pain

The convict is getting released tonight, tomorrow i will have a new image.

Go on son you done your time.
 

sukhibraich

Member
74 0
Sefty

Is there any way to change default setting on the sector graphs ? Every time I look at new sector graph I have to change time scale from 3month default to 6 month and bench mark from none to FTSE100.

If I can change the defaults then I may go through each sector bit quickly. OR is there another site which does the same ?

Thanks for your help.

Sukhi
 

sefty

Active member
114 3
do we still do boot camp training or is that very old hat now

Just wondered if we still do any training at all

and also if there are any new sites around for comparing sectors

sefty
 

sefty

Active member
114 3
Howdy folks I'm back
Been making some very nice money recently using a very simple strategy. I love TA but if you careful you turn into someone who says i saw that coming instead of someone who uses it to trade.

I only trade the DOW Jones Index with Finspreads

i look for acsending or desending triangles good support or resistence if your not sure about how to use these look at Chart Patterns, commodity and stock chart patterns, charting, technical analysis, commodity and stock price chart analysis, stocks, futures and options trading
keep it simple go with the trend
use a good stop and loss system

Its as simple as that

Hope your all trading well

Regards
Sefty PS if any of the old orignal city investor site users are still around say hello. Especially Doc, Martin, Sharky etc