Scribd
Upload
37 views11 pages

Long Term Trading Course

Uploaded by

wambuidorcas261
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
37 views11 pages

Long Term Trading Course

Uploaded by

wambuidorcas261
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 11

Long

Term
Trading
Course
Q4 2024

STOCK MARKET EDUCATION SERIES


What is position trading?
Of all the types of trading, position trading is the one with
the longest holding times. Consequently, the profit
potential is greater, but so is the risk. History is full of
famous examples of great traders who made their
fortune by implementing position trading strategies.

For example, Joe Ross spoke of what is surely the


longest example of position trading on record, which
lasted almost ten years (from 1991 to 2000). The investor
in question opened a long-term position in the S&P 500,
which he held for a long period of time, by setting a
trailing stop that was triggered only when he felt that a
good profit had been made, thus finally closing the
position with a profit of 16 million dollars.

Another famous position trader was Philip A. Fisher, who,


in addition to being a great investor and being followed
by a large crowd of admirers, including Warren Buffet,
made excellent investments, focusing on good
companies with very encouraging data. In 1955, Fisher
made a long-term investment in Motorola shares and
held that position until his death at the age of 96.
Position trading strategies

Position trading is the trading strategy most similar to


traditional investment. Position traders profit from long-
term price movements and, consequently, are more
interested in markets that have well-defined trends and
narrow price ranges, rather than markets that experience
high volatility and wider trading ranges.

Position traders usually use a combination of technical


analysis and fundamental analysis when making
decisions, but also take into considerations other factors
such as market trends and historical patterns. Good
position traders are those who can successfully identify
the right entry and exit points and know when to place a
stop-loss order.
Examples of position trading
Company growth analysis
For long-term investors, one of the keys to success when
it comes to trading shares is being able to understand
what factors influence market expectations and how
these can change over time.

Growth anticipation
The primary driver of a company's valuation is its ability
to grow earnings and eventually dividends. There are a
number of ways that a company can increase its
earnings over time.
1) Growing the business
Companies can increase sales by entering new markets,
entering into partnerships and joint ventures, winning
new contracts or customers, developing and launching
new or improved products, improving marketing and
sales offerings and more.

2) Raising prices
During positive economic times, some companies gain
the ability to charge higher prices for their products as
demand increases. This is particularly significant for
resource producers during bull markets for commodities.
3) Cost controls
A company can also improve its profitability by reducing
expenses, although those that do run the risk of cutting
corners. To measure this, investors often look at
expenses such as administrative, sales and marketing,
interest and depreciation as a percentage of sales to
determine how efficiently management is running the
business. Looking at operating earnings as a percent of
sales (margin) can also give an indication of a company's
profitability.
Risk of disappointment
It's important for investors to recognise that while
companies can enjoy great success, there are also
numerous risks that could cause them to lose money or
see businesses decline dramatically. Fear of negative
outcomes can limit the upside potential for shares, or
even cause declines.

1) Operating risks
There are many possible problems that a company may
face as a part of normal business, including machinery
breaking down, the entry of new competitors, price wars,
input cost increases, adverse economic conditions, lost
contracts or customers and more.

2) Political risk
This varies by country but relates to the potential that a new
government could gain power and implement adverse
economic policies such as tax increases, new regulations,
asset nationalisations, and other initiatives.

3) Currency risk
Companies operating in multiple countries run the risk that
increases and decreases in currencies relative to each other
could impact the company's revenues or cost structure and
may increase or reduce the earnings power of foreign
operations in terms of the home currency.
Risk of disappointment

4) Legal risk
This relates to the possibility that the company could be
sued. This particularly appears in sectors where there
can be disputes over patents and intellectual property
which could lead to significant damage awards or
injunctions against doing business.

5) Insolvency risk
In difficult times, companies with high debt levels can
find themselves unable to meet their obligations to have
enough financing to meet their day to day obligations.
To determine the financial strength of a company, there
are a number of ratios that an investor can analyse.
These include:

-Debt to equity = total debt/total equity (measures how


leveraged the company is) -Times interest earned =
operating income/interest payments (measures a
company's ability to at least service the interest portion
of its debt) -Current ratio = current assets/current
liabilities (measures a company's ability to meet near-
term obligations with current resources)
To give you an example of a long-term trade, we can look
at NVDA in March 2024. Let’s break down why it was a
good position trade using the points that we covered.
Growth Analysis from March 2024
1. This company is in an emerging market. AI chips and
semiconductors were being adopted every day.

2. Raising prices - This company had managed to


increase their revenue for at least the last 4 quarters.

3. Cost control - This company’s Net margins had


increased from 11.47% to 51% in the last 5 quarters.

Risk of Disappointment
1. Operating risks- The company could face potential
competition from upcoming chip manufacturers. This
has to be monitored.
2. Political Risks- Regulations don’t cause a huge risk for
this industry, as it is allowed to innovate freely.
3. Currency Risk - This is a US based company with
primary US operations. It manufacturers in cheaper
countries which could pose a risk if there is every
political unrest.
4. Legal Risk - The company has to be careful with
potential patent infringement but is assumed it is not a
big risk.
5. Insolvency Risk - The company has very healthy debt
levels with enough capital to sustain their operations for
years.
When you combine all of these factors, you begin to
paint a strong picture. As long as these growth factors
don’t begin to skew in the wrong direction, we can
confidently say that we expect prices to increase in
the long term. As such, we can buy a position on a dip
and hold for months or years, expecting higher prices.
It is important to be patient when position trading.
Combining this long-term analysis with our short-term
strategies we can get excellent entry points for a long-
term play.

You might also like