Chuzz, your buy and hold strategy bodes well with me, since that is why I have been trying to follow it, though it is difficult during corrections. However, I think there is value added to all of these strategies, if applied carefully and temperately.
The tax implications of being in and out of a stock in the near term is a large factor for me; I would have to not only be able to time it correctly, but as you pointed out I would have to 6-7% better than the holder just to break even. Furthermore, I see another difficulty with gaming runs. Although such techniques might work in certain processes, their effectiveness is a function of how well one can detect and act on changes to the trend for some period (days, weeks, months) while identifying and ignoring the random error (intra-day and short-term volatility).
To use the Dow as an example, say it is at 9000 and is expected to reach 10,000 in a year, that is a 1000 point movement over roughly 250 trading sessions, or about 4 points per session. However, the intraday volatility can easily be 100 points, so the "signal to noise" ratio is 1:25. The question is whether a runs-based strategy can extract that one part of signal for 25 parts of noise and decide when the trend is changing, a very tough thing to do. Of course, if one is a day trader then it is a different situation, one is actually playing the intra-day noise rather than the trend.
Maybe the situation is easier for an individual stock. Say AOL is at 150 (for simplicity), and one expects it to reach, say 250 in a year. That is a trend of ($250-$150)/250 days = .40 per day. Intraday volatility for AOL is $2-3, but can be much higher. So the ratio may be lower, perhaps 8:1, but still tough. The risk, of course, is that a runs-based strategy will falsely detect a local extreme in the trend and send a sell signal due to volatility rather than to a change in the overall trend.
Having said this, I can not argue with the three or four successes already (a-priori) predicted by Cosmo and Vendit using gaming strategies, so I am sure I am not doing justice to their techniques. In fact, I know I am not describing their techniques, since TA includes some quite sophisticated voodoo and I still do not know what this samurai thing is. I am simply thinking aloud about the problem to feel better about holding and going fishing during corrections. |
