Interesting Day Today - Interview on BNN

I see that I now actually have a few followers, other than just my friends and family, so I assume that you saw me on BNN today. I must say that it was an interesting experience being interviewed by Pat live on TV. I know my family and co-workers got a big kick out of it.

I have been asked to outline my approach in a little more detail, so here goes:

You start by selecting a stock - let's take Westjet (WJA-TSX) for example. You then need a site that allows you to graph the stock price and compare it to a moving average (I use my bank trading site, but I think Yahoo and others have this service - any home-gamers likely already have a site that lets them do this).

Next, you graph the daily stock price and the 40-day moving average line (you can use the 50-day, or any other, if you prefer, but I like the 40-day) and make sure you look at six months worth of data at least (a year is better).

Right now, the price of WJA is above the 40-day moving average so that means that you keep it if you already own it but you don't necessarily buy it (you missed the buy point), but you CAN always buy it if you want, since it is in HOLD territory (and it HAS been going up steadily since early November, all above the 40-day moving average line).

IF the share price was to go down over the next few days, the daily price would approach the 40-day moving average. When the daily price goes below the 40-day moving average, you SELL WJA. I only check each stock in the evening, so if the daily price is below the moving average, I put in the stop loss (a few cents lower than the current price) for the next day. I use stop losses since I work during the day but if you have the luxury of being able to watch the market, you can wait until the open to see where WJA goes - selling it if it goes down and maybe waiting a bit if it starts to go back up (it could have been a false sell signal).

You should look at the historical data from the past year and note how many times the daily share price bounces off the 40-day moving average and goes back up (for WJA, I count 4 times). That is why this line is a good buy / sell indicator.

Similarly to the above, if a stock you are following is currently below the 40-day moving average (like CP, for example), you wait until the share price appreciates and goes up through the 40-day moving average and then you BUY the next day.

Plain and simple - you buy a stock when the daily price goes UP through the 40-day moving average and you sell a stock when the daily prices goes DOWN through the 40-day moving average.

** Additions I have made to this strategy:

1) I didn't like when I bought a stock and it went up initially, only to end up going back down, meaning I didn't make any money. To counteract this, once a stock is up a bit (say 5 - 7%), I put in a stop loss to preserve some of the gains (careful to give the stock a bit of room to move).

2) If I don't own a stock, and the daily price is above the 40-day moving average and stays above it and goes back up then I buy it (just like if it had been below the line and moved up through it). Once I buy the stock this way, I follow it the same was as the other stocks I follow and sell it when the graph tells me to.

Keep in mind, there are only three possibilities for each stock you follow - BUY, SELL, or WAIT (keep it if you own it, don't buy it if you don't). I really do keep it that simple.

For tomorrow, for example, I will look to sell HXU and ENF.UN if they go down more, since they fell below the 40-day moving average line today. I will also look at selling COS.UN (I actually should have sold it today, but didn't).

The BUYS I am looking at for tomorrow are LIF.UN, S (note - released good results today), and TRP. Keep in mind that if I buy them tomorrow and they drop on Friday, the graphs may tell me to sell it. False buys and sells are a reality of my approach and I just have to learn to live with them.

As I say in my profile, my goal is to have more winners than losers, and to limit the size of the losers. Sounds simple, but as you know it can prove challenging. In the last 16 months (starting in November '08), I am up in 14 of the months, even in 1, and down 0.75 in the last. Given the state of financial markets during that time, that is a pretty good record. Especially when I only spend about 20 minutes each evening watching the 40 stocks and 10 ETF's that I follow.