Connect with us

Business

Finance: Cash in on divergence with some dumb luck

Published

 on 

PHUKET: ‘Divergence markets’ are a very interesting topic at the moment with the recent trading action in China.

From a technical perspective, the action has been fascinating because the NASDAQ continued to make new highs during the first big leg down in China. This is what is called ‘divergence’, when major markets that have been mainly flowing in tandem for many years suddenly start to head in opposite directions.

As I write this, the Chinese market has taken another 12 per cent hit in two days and it looks like we may be in for some more forced selling via margin calls.

Before I go into explaining how I interpret this divergence, I feel it is necessary to go into how traders actually use technical indicators. Notice I said ‘traders’, who are generally speculating, and not investors.

Long-term investors should not be paying too much attention to technicals, but rather looking at the underlying fundamentals and buying an asset class when it represents value. Technicals can, however, help with the timing. One area in which they can help is taking profits at the end of a bull market.

The thing that is critical to understand is that all technical indicators only work when they do, and each one has a different probability that changes depending on which time period you choose to use to measure it.

Calculate a probability of a breakout succeeding in the S&P 500 index over the last few years and you will get a different number than if you calculate it using the last 50 years. Also, traders use the law of large numbers by doing tonnes of trades to make a large enough sample size for the probabilities to be realized. Trying to time changes in an investment portfolio is not going to produce a large enough sample size for statistical significance.

What I am saying, in layman terms, is simply this: timing is generally pure dumb luck
when it comes to longer-term investors.

That said, divergence in major market indicators was one of the most trusted indicators of a turn around on the trading floor I used to work on. Intraday we would see the Russel, S&P and Dow all making new highs for the day while suddenly the NASADAQ would tank all on its own, for example. This divergence would have us scrambling to exit or trim down positions.

Similarly, in the midst of a sell off, all indices would be heading down and then suddenly one of them would make a big bounce. This greatly increased the odds that the others would soon stop falling and would greatly reduce the risk of making a quick buck off the bounce.

Now, investors are not out to make a quick buck over and over again the way traders do. I always say trading is a profession and you should not try to make it a hobby. Hobbies always end up costing you money, and trading can be a devastating hobby for many.

I advise sticking to investing with solid companies or asset managers, but that does not mean we can’t use technical tools to guide us when we hold equity assets and China suddenly has a ferocious crash. It may just be a blip, but I would certainly use the strength in the NASADAQ to take some profits and put them in the bank in case it is the first signal of a major turn.

David Mayes MBA resides in Phuket and provides wealth management services to expatriates around the globe, focusing on UK pension transfers. He can be reached at david.m@faramond.com or 085-335-8573. Faramond UK is regulated by the FCA and provides advice on pensions and taxation.

— David Mayes

 

Get more from The Thaiger

Join the conversation and have your say on Thailand news published on The Thaiger.

Thaiger Talk is our new Thaiger Community where you can join the discussion on everything happening in Thailand right now.

Please note that articles are not posted to the forum instantly and can take up to 20 min before being visible. Click for more information and the Thaiger Talk Guidelines.

Archiving articles from the Phuket Gazette circa 1998 - 2017. View the Phuket Gazette online archive and Digital Gazette PDF Prints.

Follow Thaiger by email:

What you get for $X57 mins ago

What $100,000 buys you for a condo in Bangkok, Phuket, Pattaya, Koh Samui and Hua Hin

Thailand2 hours ago

Thailand News Today | Activists plan protests all across Thailand

Thailand3 hours ago

Snitching on parking space hoggers could earn you 5,000 baht in Thailand

Sponsored11 hours ago

10 Best Seed Banks that Ship Cannabis Seeds Discreetly to You (Free US Shipping)

Weather3 hours ago

Storm Noru weakens from typhoon to depression as it moves across Thailand

World4 hours ago

Suicide bombing in Afghanistan hits students preparing for exam

Politics5 hours ago

BREAKING: Prayut reinstated as Prime Minister of Thailand

Join the conversation on the Thaiger Talk forums today!
Technology5 hours ago

What role for Thailand in China’s great European EV invasion?

Cambodia5 hours ago

Cambodian delegation in UK to seach for stolen treasures

Thailand5 hours ago

20 baht notes printed with errors, says Bank of Thailand

Crime6 hours ago

Loan shark bombs debtor’s house in southern Thailand

Thailand6 hours ago

Thai researchers develop flood-resistant rice strain

Press Room7 hours ago

Southeast Asia’s hospitality leaders step into the ring to fight for sustainability at PHIST 5

Crime7 hours ago

Horrified relatives attempt ID of disfigured suitcase victim

Travel7 hours ago

Things to do in Bangkok that cost next to nothing (2022)

Travel7 hours ago

5 best spa treatments in Bangkok to pamper yourself this September – October

Thailand1 year ago

Morning Top Stories Thailand | Police to end protests, Human Trafficking | September 14

Thailand2 years ago

Thailand News Today | Thai Airways in rehab, All go for Songkran | March 4

Tourism2 years ago

Phuket’s nightlife. Yes, bars and clubs are still open | VIDEO

Phuket2 years ago

Thailand News Today | Covid passport talks, Thai Airways heads to court | March 2

Tourism2 years ago

Phuket Thai food treats you need to try | VIDEO

Thailand2 years ago

Thailand News Today | Bars, pubs and restaurants ‘sort of’ back to normal | Feb 23

Tourism2 years ago

In search of Cat & Dog Cafés in Phuket Town | VIDEO

Thailand2 years ago

Thailand News Today | Gambling crackdown, Seafood market to reopen, Vlogger challenge | Jan 21

Thailand2 years ago

Thailand News Today | Covid testing for visas, Business impact, Vaccine approval | January 19

Thailand2 years ago

Thailand News Today | Weekend Bangkok bombs, Thailand fires, Covid update | January 18

Thailand2 years ago

Thailand News Today | Stray car on runway, Indonesian quake, 300 baht tourist fee | January 15

Thailand2 years ago

Thailand News Today | Governor off respirator, sex-trafficking arrest, condo prices falling | January 14

Thailand2 years ago

Thailand News Today | Chinese vaccine, Thailand ‘drug hub’, Covid update | January 13

Thailand2 years ago

Thailand News Today | Bangkok may ease restrictions, Phuket bar curfew, Vaccine roll out | January 12

Thailand2 years ago

Thailand News Today | Covid latest, Cockfights closed down, Bryde’s Whale beached | January 11

Trending