THE GREAT BRITISH TRADE OFF
SHARESCOPE CHART OF THE LEGG MASON IF JAPAN EQUITY FUND
From Friday’s Great British Trade Off report (click here) I said that I was placing a selling order for the Legg Mason IF Japan Equity Fund to protect profits that were rapidly bleeding away
At the recent high of £3.89 my running profit on my £10k stake was £1100, the problem with any trend following system is that you don’t know a trend has started until it has, so you can’t and don’t buy at the bottom.
Also you don’t know a trend has run out of steam until it has. So you can’t and don’t sell at the top.
The next problem when you construct a trend following system is that you have to cut the price enough slack so your not being stopped out left right and centre. This inevitably means that when a trend turns against you, you give back perhaps as much as 10% of your gains.
I’ve been a chart addict for the thick end of twenty years. Now there cannot be any argument about the fact that charts show you what has happened, the question is, do they have any predictive ability?
I think they do to a slight extent, maybe 55/45% which is enough of an edge if you use tight money management. But I don’t really use them to predict price action in any classical way.
To sell to either take a profit or stop a loss in its tracks I use the red line on my charts (it’s a six week moving average).
When the price cross’s down through it I sell, simple as that.
I’m not seeking to predict that the price will fall further, I’m guarding against the risk that it might.
On this occasion the price has come down into my selling zone and bounced up very strongly on the day (today) that my selling order went through.
I use weekly signals not daily ones, so where the price fetches up on Friday is the important figure to me, not what happens in the week. However here’s a daily chart that shows just below £3.60 as a critical price point.
SHARESCOPE DAILY CHART OF THE LEGG MASON IF EQUITY FUND SHOWING CLEAR SUPPORT OVER THE LAST SIX MONTHS IN THE HIGH £3.50’s
I haven’t the faintest idea where it’ll be by the end of the week, either I got lucky today by getting a good price at £3.742, or last Friday’s £3.60 (ish) marks the low and the price is likely to pivot back up.
If it does it may well make another buying signal, in which case I’ll re-enter. The other scenario is that it’ll fall back, in which case I’m out and my capital is protected.
What’s happened in the last three weeks isn’t ideal, the price fell too far too fast. What I had to do was protect my profit as best I could and make sure I didn’t get hurt if the price fell further.