The Trend is Your Friend

“The trend is your friend”

The origins of this trading maxim are a little hazy but scores of successful trading schemes have grown from these roots. The highly successful US trader Ed Seykota is the source of many wise words on trading and he completes this saying with

“ … except at the end where it bends”.

This summarises the simple message of trend trading – but the complexity comes in determining when the trend has started and finished.

HigherHighsThe basis of trend trading is in Dow theory. Charles Dow was one of the pioneers in technical trading and described how a stock price chart can be seen as a succession of peaks and troughs. He defined an uptrend when a chart was showing a series of higher highs and higher lows and a downtrend when a series of lower highs and lower lows were being established. The uptrend breaks when the stock price moves below a previous higher low. Slack Investor makes use of this trend finish signal as an exit for the index trades shown on the ASX Index, UK Index and US Index pages. There is a refinement to this simple strategy and the Slack Investor will exit an index trade only when the closing price is below a stop loss set by a previous higher low. This refinement helps to screen out any short term price lows that might occur during trading.

Ed Seykota has also has stated that

“Trends become more apparent as you step further away from the chart”

These wise words echo the Slack Investor strategy of trading the long term trends – by analysing trends on weekly or monthly charts.

Creating a Cushion

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From http://www.spinaltap.com/

When is the right time to start investing? … The glib answer is NOW! … or, as soon as you can. However, there are things that must be taken care of first.

We have to create a cushion. This is your emergency fund that will carry you through … or at least not make you freak out so much … when one of life’s emergencies raises its head. The cushion is just my preferred term. The Barefoot Investor calls it his “Mojo” fund on his instructive site. The best place to keep your cushion is away from your day to day expenses in a separate high interest online account that is specifically set up as your emergency fund.

How big should your cushion be? This is difficult to define, but it should be enough to cope with unexpected bills or any of the usual life emergencies – Car problems .. Medical problems … House Problems… etc.

In the words of the immortal Spinal Tap

“The bigger the cushion … the sweeter the pushin’ …”

Do yourself a favour and research the incomparable film  “This is Spinal Tap” further . A Rob Reiner mockumentary that is as old as my investing career (30 years) but contains many classic scenes … All I can say is, that if you ever get the financial blues, just spend a minute with Nigel Tufnel … “These go to Eleven”.

Your cushion should be at least $2000  … and ideally enough to carry you through a couple of months expenses (rent, food, etc). As reported on the House of Debt Blog, a recent survey of 25 000 American households found that almost 40% of individuals either could not, or probably could not, come up with $2000 if an unexpected need arose. I am sure that this would be the same or worse in Australia and the UK.

Once you have enough cash in your cushion to help you ride out a few of life’s storms … and enough financial discipline to keep this fund for real emergencies … then it is time to start investing.

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http://houseofdebt.org/2014/04/07/the-financial-vulnerability-of-americans.html

First Post … mmmm

I suppose that it is important to start of this blog with a profound post … just joking! … In reality, I am not sure how this blog will evo1374027484173661141the-thinkerlve – and what it will eventually contain.

This blog has started as a means to plot down the things that, through a great deal of trial and error, I know about investing. I don’t pretend to be a master investor – but through the years, I think that I have learned a lot and have developed methods that will work for most investors.

I have been lucky enough to learn from many kind investors over the years, together with reading many fine books on economics and investing. The knowledge that I have is continually being updated. Together with books, there are some great finance blogs that I continue to find interesting.
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In essence, I want this blog to contain information that I wish I had 30 years ago – when I first started to think about saving for my retirement. I like to think that with the type of information that Slack Investor presents, my journey to financial independence might have been a little shorter.