A Naked Trader Based Strategy

Friday, Apr 26 2013 by
10

Hi,

A bit of background ... I've been interested in blending value and TA concepts for quite a while. I've found it very useful to read value posters, particularly Paul Scott, however I've come to the growing realisation that I need to take greater responsbility for my selections and I feel that TA related concepts can help me time my entries and exits from value stocks.

Having read Naked Trader I found the combination of value and momentum appealing. To that end I've created my own version of the Naked Trader Screen. I want to point out that this screen is only a starting point for the screening process. I'll still want to read up on company announcements, study the charts, look at price targets (using Point & Figure charts), potential support points, consider risk/reward ratios.

However, here are the basic screen rules based on Robbie Burns' basic criteria and the results of that screen ...


I then explored these companies in more detail trying to get an understanding of their business and by checking recent company announcements as I'm trying to get a perspective on their potential. After reading up on the last two statements from each company I excluded Rank (LON:RNK) & Diploma (LON:DPLM). I've then examined the Point & Figure charts for each stock to get a better feel for the texture of their trend. The only stock that didnt make it through this analysis was Savills (LON:SVS), which I rejected due to the recent strong drop off new highs (See the figure to the right).

I then analysed each stock using Point & Figure Charts looking for price targets. Point & Figure price targets are generated by the price action itself. As a result some stocks won't generate a price target and that was the case for Cineworld (LON:CINE) so I put it to one side for now. I then considered technical support levels for each stock and this enabled me to produce risk reward ratios for each stock. The results of this analysis are shown in the table below…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. The author may own shares in any companies discussed, all opinions are his/her own & are general/impersonal. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


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LSE Price
765p
Change
 
Mkt Cap (£m)
205
P/E (fwd)
17.3
Yield (fwd)
2.8

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LSE Price
132.5p
Change
 
Mkt Cap (£m)
37.0
P/E (fwd)
35.4
Yield (fwd)
n/a

Brewin Dolphin Holdings PLC is a United Kingdom-based company, which is a provider of wealth management services. The Company offers personalized wealth management services. The Company focuses on core services of discretionary investment management and financial advices, coupled with improving operational efficiency. It also offers investing money, pension and retirement, passing on wealth, protecting wealth and life events. The Company's investing money includes investing for growth, investing for income, investing tax efficiency, investing for goal and managing own investments. Its life events include family, divorce, later in life and selling of business. Its pension and retirement includes building retirement funds and options at retirement. Its services include Wealth Management, Investment Management, Financial Planning, Managed Portfolio Service (MPS), Brewin Portfolio Service (BPS) and Advisory. It offers Discretionary Management Service and Managed Portfolio Service. more »

LSE Price
296.6p
Change
1.4%
Mkt Cap (£m)
899.1
P/E (fwd)
13.1
Yield (fwd)
5.8



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7 Posts on this Thread show/hide all

PhilH 26th Apr '13 1 of 7
1

I should have added to the original post that of course this does not constitute investment advice. You should be aware that this is not my job, and that some of the data used to build this strategy is based upon my own software tools and as such may be riddle with defects (hard though it is for me to admit that).

One thing I have noticed as I analyse the remaining stocks is that there can be limited liquidity in the stocks. I tried to counter that by imposing a 3m average volume threshold, but a sudden surge of buying from an institutional investor can dramatically skew that data. Revisiting Naked Trader it's clear that Robbie just ignores AIM stocks. This would leave just Cranswick (LON:CWK) & Brewin Dolphin Holdings (LON:BRW).

I'm wondering if anyone can suggest a way to include AIM stocks but only select ones that have a good liquidty?

Thanks in advance
Phil

Professional Services: Sunflower Counselling
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Edward Croft 26th Apr '13 2 of 7
1

In reply to post #72848

Phil - it might be worth you posting a direct link to your screen so that others can 'fork' it and link to iterations from the comments here. Our own version of the rules are here and they show a lot of similarities to your version - http://www.stockopedia.com/screens/naked-trader-esque-screen-164/

All screens by default cover the entire UK universe (LSE Main and AIM markets + ICAP securities exchange (which used to be PLUS Market)) - so AIM stocks should be included in your criteria posted above. If you want to select specific UK market segments you can use the rule builder "Index/Exchange" from the dropdown and include/exclude AIM/ISDX etc at will.

Good liquidity is harder to pin down - we should probably do some average volume * price analysis over a set time frame and compare it with market capitalisation - any ideas on this front let me know and we'll try and add it to the screener.

Hope that helps.

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PhilH 26th Apr '13 3 of 7
1

Hi Ed,

Thank for the feedback and here's a link to the screen http://www.stockopedia.com/screens/phils-naked-trader-screen-8127/

I've added an extra rule to exclude the AIM stocks for now, but actually I guess I'd prefer not exclude AIM stocks per se, but rather find a way to filter out less liquid stocks whether they be AIM or full stocks.

Cheers
Phil

Professional Services: Sunflower Counselling
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PhilH 26th Apr '13 4 of 7
1

I've decided o remove the AIM criteria and instead I've chosen to limit shares that have an 3m average volume of < 40000. This will also cut out the illiquid stocks on the main index. Not ideal, due to large trade skewing, but better than excluding all of the AIM imo.

Professional Services: Sunflower Counselling
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Asagi 26th Apr '13 5 of 7
1

Revisiting Naked Trader it's clear that Robbie just ignores AIM stocks.

Hi PhilH... not sure where you have gotten this from but it is not true. Robbie Burns appears to have placed plenty of trades in AIM stocks see:

http://www.nakedtrader.co.uk/trades.htm

for example Lo-Q (LON:LOQ) and Coastal Energy Co (LON:CEO).

Asagi (no position)


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Calalily 26th Apr '13 6 of 7
1

Good post Phil, interesting to see your screen.  Yes, Robbie does buy AIM shares but tends to steer clear of small mining companies etc. I think you may have got the info from one of his books. If I remember correctly he does also sometimes go for a riskier AIM share in his SIPP.

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PhilH 26th Apr '13 7 of 7

Hi Asagi,

Thanks for the reply.
You are correct. I went back to the book and he says he ditches them if they are a very small AIM company or have an EMS of less than £2000 (you can find the EMS for each stock on the LSE website). He doesn't clarify what very small means though.

Perhaps the EMS criteria combined with the £50m minimum market cap helps to sift of stocks with limited liquidity?

Professional Services: Sunflower Counselling
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