I have a bookshelf full of share trading books, dating back to the 1990s. After attending the Australian Investors’ Conference, in August, I decided to update my library to the current books written by my favorite authors. Much has changed in that time, particularly after the GFC. Many authors changed their views on how to manage shares in a downturn.
I will review each of my favorite authors and their many books over the course of next year. But I guess many of you will want to spend some of your holiday break catching up on your reading, so here is a summary of my favorite authors and their books.
These recommendations are intended for the person who wants to manage their share portfolio over the medium to long term, and only want to review their portfolio say once a week or month.
Darryl Guppy (Guppy Traders)
Darry Guppy’s most significant contribution to charting was the development of the multiple moving averages indicator. He lays on a chart a set of six short term moving averages from 3 to 15 time periods and a set of six long term moving averages from 30 to 60. The time periods can be either days or weeks depending on your trading horizon. Personally, I like to use the indicator on a daily chart. The aim is to purchase the share when both the short and long term traders are in agreement that the price trend is up. That is, each of the 12 moving averages will be moving parallel and in an upward trend with a parallel gap between the two ribbons of short and long term moving averages. For selling the share, the reverse will occur. That is, when both the short and long term traders believe the share price is falling. The extent to which you will wait for the longer term moving average to turn downwards, will depend on your investment time horizon. The longer you wait, the move you will lose. On the other hand, if you are a very long term investor you don’t want to find yourself being unnecessarily stopped out if you are in for the long term.
After the GFC, Darry Guppy developed a new method of choosing when to buy and sell a share. He refers to this as Trend Volatility. The concept is somewhat difficult to grasp, but for the short term trader this methodology is quite important. In fact, if you want to keep short stop losses on your initial trade until it is in significant profit, this is an indicator worth taking the time to understand and use.
Darry also offers a seminars, courses and newsletters which you will find on his webpage Guppy Traders. http://www.guppytraders.com/
I think in time, you should read at least one of these books:
- Trend Trading
- Guppy Trading: Essential Methods for Modern Trading
Alan Hull earns a place in my best authors because he has developed three important concepts which are very important for the long term trader.
The first is the Hull ROAR. ROAR stands for the ‘Rate of Annual Return’. This indicator is intended to find the shares which are rising the fastest. That is, if you have made a selection of say three shares, based first on fundamental analysis and then on the upward trend of the share, the final decision should rest on which share is rising the fastest and therefore likely to make you more profits.
In general terms, Alan says, you should not buy a share which does not have a ROAR of 30% and you should sell when the ROAR is 20%. He does have some more detailed ways to use the ROAR, but this is the basic principal.
Alan also developed the Hull Moving Average. This indicator is intended to remove the lag time, making the line move responsive to recent price changes. If you want to use just one moving average rather than a crossover of two moving averages or Guppy’s multiple moving average, I think this is the best one to choose.
The third indicator I like to use his Hull Envelope. There are three cords to this indicator overlaid on the share price. The first is the central cord which is a linear regression line of 13 time periods. The upper and lower lines are deviations from the Average Trading Range (ATR). An average trading range for the last 13 days is used. The upper line is three (3) times the average trading range. If the share price moves above this line, he considers that the share price has been over bought and will fairly quickly move back to within the envelope. When this occurs, it may be time to take some profits. The lower line is again based on three (3) times the Average Trading Range, but this time there is an added condition. If the price starts to fall, the lower line will move sideways, maintaining its relationship to the last highest price. This line is a stop loss line. If the price falls below this line you should sell the share.
Knowing when to sell a share is the really hard part of owning shares. Seeing the point marked on a chart and automatically calculating each day or week, the stop loss is an extremely valuable piece of information.
I have been to a number of events where Alan Hull has been a guest speaker. His speaks exceptionally well. He has a great website, AlanHull.com (http://www.alanhull.com/) where you can access both free and paid courses. There are three free courses each delivered over 4 or 5 days. http://www.alanhull.com/education/#complimentary. There are also share investor clubs in both Melbourne and Brisbane, called The Sunday Traders Club, which you may like to join.
Depending on the type of share portfolio you want to manage, I would recommend any of the following books:
- Invest My Way: The business of making money on the Australian Share Market with Blue Chip Shares
- Trade My Way
- Active Investing: How to manage your portfolio like a professional
Colin Nicholson is another of my long-term favorites. I have included him because over my lifetime of investing, he is the most conservative and he is one who is most likely to keep you out of the share market when prices are falling.
His basic philosophy is that he invests in shares or cash and never borrows to buy shares and does not use any derivatives. The percentage invested in cash and shares will vary depending on how he perceives the share market risk of falling prices. His website Building Wealth Through Shares (http://www.bwts.com.au/) gives a wealth of information.
He was a guest speaker at a function I recently attended. Colin said that he is now retired and as he relies on his share portfolio to fund his retirement he has to be much more cautious. I felt that for my more conservative readers or retirees, his common sense approach to manage a share portfolio over the long term would be of great value.
Colin currently has two books for sale, and while I have not read the second, I am sure you will enjoy them both.
- Building Wealth through Shares
- Think like the Great Investors
As an old friend of mine often said ‘May the markets be with you’
Happy reading for the holidays.
Glenis Phillips, SF Fin – Good Financial Reads