Ask Colin

How do I identify the peaks and troughs in price that are relevant to me as an investor?

As an investor, you should be looking for trends that last at least one year as a minimum, so that you can take advantage of the capital gains tax regime, rather than pay tax on your full profit, which is the case if you hold for less than 12 months.

My approach aims to capture trends that run for several years. I find that the good value model stocks will trend upward for between one to three years in most cases, some less, unfortunately, and also a few longer than this.

The game I play is to get into such trends early - on breakouts from accumulation areas and try to hold through the whole mark-up phase. When the breakouts fail, I take the losses quickly and let the good ones run as long as possible. When the trend ends within one year, I still take the profit and pay the tax, because although there is no way of knowing in any one case, many of them fall by more than the tax you pay, so you end up with less capital to reinvest if you hold on.

Growth model stocks I also try to hold as long as I can - if they go into a consolidation phase, I like to stay invested unless they give a sell signal. That way I can capture more than one mark-up phase and pay less tax.

As to how you know which timeframes the trends are in, it does unfortunately come back to experience. As you build up experience, you will become more confident in your ability to judge. However, there are some guidelines:

1. Start your analysis with as much data as you can (10 years is good) on a monthly chart. This shows you the big picture and you should be able quickly to spot the value model charts, the growth model charts and all the rubbish that is neither or have not been around long enough for you to tell.

2. Then you should look at the weekly chart with 3 to 5 years of data, looking for the breakouts from accumulation zones (value model) and consolidation zones (growth model). You will also see established trends that you might decide to buy into.

3. You need to look at lots and lots of charts and develop a feel for these things. One idea that a lot of people have found useful is to study the case studies on my subscription web site from Shares Trendlines columns, Shares Weekly columns and BRW columns. Sometimes I will have focussed on a short term picture, but mostly I will have been looking at stocks in the time frame I invest in as a position trader as described above.

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