I have a few basic tenets for investing;

(1) I do not Buy and Hold

(2) I tend to be more Aggressive than Conservative

(3) When the market is bad in the United States, I invest in other countries

(4) I do not buy bonds or CDs for the long term and

(5) I use the Keep It Simple Stupid (KISS) method.

I’m sure there are other tenets but these are the five I try to keep in mind when I am investing.

I use some free tools available on the Internet; (1) Stock Charts (2) Fund Alarm and (3) Yahoo! Finance to help me with my investment decisions. Formerly I used Yahoo! Finance for all of my charting. But I like all of the features of the Stock Charts web site and it is more useful to me now that I have learned the ins and outs. Both Stock Charts and Yahoo! are free so try them both to see which you like better. Yahoo! has a feature on their charts called Interactive Charting, which is nice. I also use Yahoo! to track my portfolio online. Let’s take a look at Stock Charts.

If you go to the Stock Charts web site the chart that shows up on the left, is $INDU. $INDU is the Dow Jones Industrial Average symbol that Stock Charts uses and it shows the market for today. On Yahoo! they use the symbol ^DJI. Yahoo! has a little chart on the right side that shows the activity for the day. If I were a day trader, that might be useful, but since I am not, I like the charts from Stock Charts better.

In charting a stock or mutual fund there is an expression that goes, “The trend is your friend.” So you should always go with the way the trend is going. On purchases, if the trend is up, you want to be a buyer. And conversely if the trend is down, you want to be a seller. So you buy when the trend starts up, but when exactly? And how do you know that you are not buying at the top? Those are two good questions. I’ll answer the first question in this post. So let’s take a look at an example.

Go to: Stock Charts. On the right side of the page, in the blue shaded area, Use Snap Chart, as the type of chart. Then put in the following symbol: FHKCX. And then click Go. This action will pull up a chart showing Fidelity Hong Kong and China Fund. Go to the bottom of the chart just above the button that says, “Join Now for >>>” and you will see an area called Indicators. Set that box to -None- and click Update just beneath the word -None-. Next move up the area where it says Overlays and change the Overlays from Simple Mov Avg to Exp Mov Avg. Under parameters set the first Exp Mov Avg to 40 and the second box below it for Exp Mov Avg to 80. The third box should be set to -None- with no parameter set. Click the Update button just under the box that says -None-.

The chart, while better, is not done yet. Move up and just below the chart itself, it says Chart Attributes. The period should default to Daily. The Range should be Fill the Chart. Set the Bar to 3. Gap is 0 and Extra Bars is left blank. Type should default to Candlesticks and set the size to 620. Now click update for that section. Now you should see the chart for the past nine months or so – from May 2009 until January.

This shows you the price movement of Fidelity Hong Kong and China Fund since May 2009 and you can see that the trend is up. So now might be a good time to buy into the fund.

Look at the chart in the upper left hand corner. There you will see the legend for the chart lines. Look at the blue line which should be the EMA 40 line. And then notice the red line which should be EMA 80. The blue line is a short term indicator. If the price chart goes through the blue line, I put this fund on my “watch list” and I start to watch this fund daily.

If the price goes through the red line I sell. And I keep watching the price movement. I keep watching because the trend is still up and I know that the trend is my friend. When the price goes back up and crosses back through the red line, I watch more frequently. When it crosses through the blue I buy. For this particular fund I went on “daily watch” the 2nd week of August, but the price bounced back up and did not go through the blue line. I relaxed around Labor Day since the price went through the blue line to the upside.

Around the first of October I went back on “watch” again, but only for a couple of days. I went back on “watch” at the end of October for a week or so and again I went back on “watch” around Thanksgiving. I was starting to see a pattern forming on this fund and on December 15th, I went back on “watch”. Using my own rule, I should have sold, but given the pattern of bounces, I decided to break that rule for an additional confirmation. At this time, I added a third line under EMA for a parameter of 100. What I wanted was a confirmation that breaking through the EMA 80 was indeed a confirmation that the fund was heading south or down.

Without this confirmation line, I would have sold my fund on December 15th and I would have bought back in on December 30th or so. This is called a whipsaw effect. And you want to minimize whipsaw if you can. I created a 3rd line when the price moves through my second line of EMA 80. I take one half of the EMA 40 and add it to the EMA 80 and add an EMA line of 100. This is my “sell before it goes to hell” line. I did that because I was seeing a pattern of the fund going through the EMA 40 just about every 30 – 45 days. It seemed pretty volatile and was worth being a little cautious.

The first question from above was “So you buy when the trend starts up, but when exactly?” If I were buying this particular fund, I would have bought in at the end of the year – on December 30 or 31st. If I had bought the fund on December 30th at $27.61, and today, January 14th the price is $28.19, you would be ahead about 2.1%. Not enough to retire on, but not too bad for about two weeks. If you buy this fund, you need to keep your eye on this fund’s price and watch the fund price together with the EMA lines so you know when to sell.

Jeremiah John

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