The Art Of Growing Money

Dilemma... US stocks or Index trading

noreply@blogger.com (decipher) — Tue, 13 Oct 2020 09:26:00 +0000

I tabulated my US equity trades using CFD. I knew it is expensive, but only after i checked, i have to do something about it. After deducting all trading costs including commissions, from 3.9k gross profits, i am left with 2.5k. Cost of trading 35%. It means, if i placed 10 trades, i would have to pay at least $40 commissions 2-way, which means if i made $800 profits from 10 trades, in effect i only made $400. So i have to make more which means to take up more size . currently i am on a 20 to 30k trading account.

A few things i have to consider:

For complimentary workshops or events on trading, register at http://www.chartnexus.com/itp DISCLAIMER: The contents in this website are for fun reading and must not be taken as a buy or sell advice. You must do your own analysis on top of my postings. By reading this blog, you agreed that i am not responsible for your trading.

SGX and Bursa updates

noreply@blogger.com (decipher) — Tue, 13 Oct 2020 09:24:00 +0000

Long time no update due to the busy schedule. With a change of work scope, more time is devoted into trading as i helped my members to construct portfolio in Bursa as well as SGX stocks. Below is today's snapshot. I am thinking to do this on a more frequent basis.

You can follow my free facebook live at : https://www.facebook.com/ChartNexusChartingSoftware

1H 2019 Performance KLSE

noreply@blogger.com (decipher) — Fri, 19 Jul 2019 02:10:00 +0000

DISCLAIMER: The contents in this website are for fun reading and must not be taken as a buy or sell advice. You must do your own analysis on top of my postings. By reading this blog, you agreed that i am not responsible for your trading.

48 Trades were taken and the return for 1H 2019 is 14.1% with a win rate of 56%.

Happy New Year!

noreply@blogger.com (decipher) — Thu, 04 Jan 2018 06:10:00 +0000

Happy New Year to everyone reading this. I did a trade review over the New Year weekend and it was great. I always wanted to do this ala a Livermore style...who would lock himself on the last day of the year to review his past trades and count his millions in cash. Ok the last part is not do-able... firstly i do not have millions, maybe in coins still possible. But my wife will kill me if i do not spend time with her and kids on holidays. But this year is special, the kids have a playdate and i am always excused from playdates since all the mummies will chit chat, so it is uncool for daddies to be there. By reviewing the trade history, stupid trades stood out and repeatable trade setups make me exciting. All i have to do is repeat winning trade setups and avoid stupid trades. It is human to err. So being a human, i am also tempted by greed... once in a while i will stray from the trade plan. But sanity and money rules rescue me from the abyss. So after i am done with the Singapore equity trades review, i went to do the same to my CFD account. I clicked the consolidated P&L for the year, i sian half. So many trades... some were intra-day, some were hedged positions... i dread going through them. So i passed on them. In essence, this CFD account grew 20% in 2017 from a base of 20k. This 4k should be good for CNY, ang pows la, CNY groceries la, etc... I do not have serious plans for this account yet. Core trading profits still come from Singapore equities where as the leader of Tradersclub, it is more aligned to be trading that. For now, each trade is about 2% risk, so $400. Thus it is still a decent position to put on. Perhaps just take it trade by trade and grow this account.

On the market front, bed of roses. I got Chip Eng Seng right where i think it is gonna be. Market strength index climbed so are those stocks in my portfolio. Even the declining USD added cheer to our FX robot. The gold bearish setup i been waiting for did not materialise so i was not in trade and i dare not lie to you that i long Gold. No i did not turn long. It was festive season, i didn't want to be busy and miss the moments with my kids. So i have to reassess my Gold, pick a direction and wait for the trade setup.

Trade setup for Singapore equities and Gold is different for my case. With stocks, volume plays a big part in my analysis. For Gold, the volume though nice to have but i rely alot on supply and demand zone. How the price is testing support or resistance...etc.. i think people call that price action.

For complimentary workshops or events on trading, register at http://www.chartnexus.com/itp

DISCLAIMER: The contents in this website are for fun reading and must not be taken as a buy or sell advice. You must do your own analysis on top of my postings. By reading this blog, you agreed that i am not responsible for your trading.

BitCoins and Cryptos

noreply@blogger.com (decipher) — Fri, 22 Dec 2017 10:35:00 +0000

It's Christmas! I remember i used to look forward to Santa rally back in those days... how naive... haha but to all those who started trading after blumont crash in 2013, before that it is really easy... Singapore market would just follow US, HK closely... nowadays we can only salivates as we see those two markets break new highs and STI??? Pui chao nua...

Anyway, market changes from time to time. We as traders need to adapt. Go with the flow and follow the tempo.. not a time to be bullish just wait. Don't be like those bitcoin chasers... at USD2000 they call it a bubble and scam... but at USD20k, everyone wants a piece of it. I am out at USD2k plus using coinbase and xfers for those interested to know. I just wanna try how it works, then the more i read the more i dislike. The day China govt shut down the exchanges, i am out. Then i realise all those syndicates smuggling, drug cartels, hackers... bad people in short maybe benefiting from this. By participating, am i funding their crimes? Oh my god.

Then today i read Goldman Sachs may form a trading desk by June 2018 to trade cryptos. Greed of Wall street is really horrible. I cannot imagine when they start to package it and then sell to the commoners... Financial Tsunami part 2 on the cards.

I will be at www.facebook.com/chartnexuschartingsoftware if you wish to talk real-time on stocks.

Otherwise, we are organising a 2 events special at our office on the 27th Dec... all are welcomed! Details are on our facebook.

For complimentary workshops or events on trading, register at http://www.chartnexus.com/itp

DISCLAIMER: The contents in this website are for fun reading and must not be taken as a buy or sell advice. You must do your own analysis on top of my postings. By reading this blog, you agreed that i am not responsible for your trading.

Chip Eng Seng

noreply@blogger.com (decipher) — Thu, 21 Dec 2017 09:53:00 +0000

I started this when i was 24 years old and broke. Now at 39 and financially comfortable, i am trying to come back to blogging. At 24, it was trading and going for quick profits and building equity top of my priority. By the way, i won't care much about my language or grammar, so please excuse me for this. Now at 39, with aging parents, two young kids, trading taken a different perspective. I no longer have the risk appetite, no wonder they say as a man ages - balls shrunk. Ok this blog, as i am writting, primarily i will be sharing my thoughts which are random. It could be stocks, market, FX... life in general... illness...etc... I am already preparing myself for the next 10 years - demise of loved ones is unavoidable and my biggest problem is, i have alot. I will deal with that later. But for now, we talk market.

From October till December, i traded Gold to maintain my sharpness. Leaving the FX trading to the algos we developed. Stocks wise, i developed a method of only participate when there is wide spread strength. Some time last week, at last i saw some buying interest... and taken up a position in ChipEngSeng. The first of many which i am tracking. 18th Dec the volume caught my attention. The subsequent pull back showed very low level of participation. This low participation is expected since it is the holidays. But that doesn't mean the market won't rally. Anyway, i trade alot based on setups rather than market views. I think that suit my style. Although at events, i still have to be market news savvy so the traders are updated, but really, i hate to glue my eyes infront of screen all day long. So no trade setups, i won't place any orders.

I am still looking forward to the day when volume returns and which direction the market takes - that should be key to the next few weeks. We are at the lows... so the position size right here should be significant to take advantage. I always told the guys, we analyse and wait for so long, in the end, if we are right about the direction, our position size should be significant enough so that the rewards is equal to our efforts.

As for gold, i am watching the rising wedge on 4HR chart. I am a big fan of chart patterns. With patterns, it either breakout as what the pattern suggest or more importantly "failed breakout" - which is one of the most tradeable setup. Just let the price and candles guide us.

There, my first post in the longest time. Leave a comment or ask questions if you'd like. Lets do this together.

For complimentary workshops or events on trading, register at www.chartnexus.com/itp

DISCLAIMER: The contents in this website are for fun reading and must not be taken as a buy or sell advice. You must do your own analysis on top of my postings. By reading this blog, you agreed that i am not responsible for your trading.

TRADING WITH RSI

noreply@blogger.com (Unknown) — Wed, 05 Apr 2017 03:48:00 +0000

This article was written in 2007.

While the use of Relative Strength Index (RSI) to get technical buy and sell signals in a range-bound market is well understood, the use of this indicator in a trending market is more intricate. This article covers the use of RSI over the three types of market conditions namely uptrend, downtrend and range-bound or sideway market. We will explore the concept of support and resistance levels which can be used to enhance the accuracy of the RSI signals.

RSI developed by J. Welles Wilder, is a powerful indicator used to measure the velocity of the price movements. Unlike other momentum indicators such as Stochastic that have wide variations even with little overall price movements, RSI is immune to such drawback due to the way its value is calculated. In brief, RSI values are affected by the number of days that the price closes up and the number of days that the price closes down over a certain time period “t”. Commonly used periods for t are 14 and 21 days. In this article, we will use t = 14, the period originally proposed by Wilder.
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RSI In A Sideway Market

Technical signals are obtained by setting two levels, typically a high level at 70 and a low level at 30 where RSI above the 70 level is considered overbought condition while RSI below 30 is considered oversold condition. An example of the application of RSI is shown in Figure 1. We observe that during the August 2006 to December 2006 period, SembMar was trading within the range of $3.20 to $3.58. In such a sideway market that is showing no bias of significant upward or downward price movement, RSI works quite well in identifying the tops (RSI in overbought region) and bottoms (RSI in oversold region) of the price movement.

Figure 1: Example of using RSI in a sideway market

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RSI In Trending Market

In cases where the price of the stock is trending upward or downward, the overbought and oversold levels have to be changed. This is because RSI being an oscillator that oscillates between 0 and 100 will stay high in an up-trending market as there are consistently more days where prices go up as compared to days when prices go down. Conversely in a down-trending market, we expect RSI to stay at low values. Using the same values of 70 for overbought level and 30 for oversold level will mostly result in wrong signals such as entering and exiting too early or no signal. Such a scenario is illustrated in Figure 2 where RSI did not even drop below the 30-level as Capitaland trended strongly from $2.80 all the way to $5.00. In this case, using the 30-level did not generate any entry signal for a long position. Moreover keeping the 70-level causes Capitaland to be in overbought condition for long periods of time.

Moving upward both the overbought and oversold levels to 80 and 40 respectively as illustrated in Figure 3 now provides clearer trading opportunities. In such up-trending stocks, notice that the oversold signals actually provide opportunities to enter for a long position during the short-term downtrend (retracement) in the longer uptrend price movement.

On the other hand, for RSI trading opportunities for down-trending stocks, the overbought and oversold levels have to be shifted downward to 60 and 20 respectively.

The examples of setting different overbought and oversold levels for different market conditions highlight the importance for technical analysis practitioners to adapt their use of technical indicators and indicator settings for different market conditions.

Figure 2: Example of oversold level at 30 for a stock in an uptrend

Figure 3: Example of oversold level at 40 for a stock in an uptrend

To trade solely based on RSI is not sufficient. Other concepts of technical analysis such candlestick formations, trendlines and other western indicators must be added to the trading strategy to serve as confirmation of the signals and to increase the accuracy of the trading signals. Next, we will employ the concept of support and resistance to confirm the entry and exit signals generated by RSI.

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Support & Resistance

Support and resistance are very important concepts in technical analysis. While it is easy to understand, its application is usually not so straight-forward owing to the many support and resistance lines that can be drawn on any given chart. On the price chart, we will emphasize on lines that have more contact points with the price structure. Another important point to note is that a resistance line which was providing resistance to price movement will provide support if this level is broken. Conversely a support line will become a resistance line once it is broken. This is illustrated in Figure 4.

Figure 4: Example of support and resistance levels

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Application Of RSI With Support And Resistance

To increase the effectiveness of the technical signals, we will buy near support level while RSI is in oversold condition. Take note that the trend must first be determined in order to select the appropriate values for the overbought and oversold levels. Figure 5 illustrates the application of this simple strategy on SGX. As SGX is in an uptrend, the overbought and oversold levels are set to 80 and 40 respectively. Two excellent bullish technical signals were generated in July and December 2006 when RSI was in oversold region while the price was near the support levels.

In fact, the above scenarios can be easily captured using an automated system, saving you significant amount of time and hunting down stocks which present excellent trading opportunities. One such software is ChartNexus XPertTrader (see Figure 6) which can be used to automatically screen the market for stocks that have RSI, MACD, Stochastic bullish and bearish signals. More details can be found at http://www.chartnexus.com

Figure: Example of the application of RSI and support level to identify bullish signals

While the sections above introduce you to a simple strategy of using RSI signals coupled with the support and resistance concept, it is important that you still adopt proper money management, stock selection and rotational plays techniques in addition to the timing analysis showcased in this article.

Figure 6: ChartNexus XPertTrader screens the whole market for technical signals

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This article first appeared in Smart Investor in 2007.

Major Reversal Pattern - Double Top

noreply@blogger.com (Unknown) — Thu, 23 Mar 2017 06:47:00 +0000

This article was written in 2007.

At every start of a major decline, it was observed that certain price patterns will occur on the chart. They are historically proven to at least influence the immediate trend if not the mid to long term trend. While most of the investors will be caught off guard as the downtrend persists, traders who are able to identify reversal patterns will be in a better position to avoid massive losses. This article will discuss one of the major top reversal pattern known as the double top pattern.

As the name suggests, in-order to reverse a trend, there should be a significant uptrend prior to this reversal pattern. The price will move to a new high and pulls back to form a trough before another peak fails near the old high of the first peak. Many traders and investors may jump to a premature conclusion that a double top pattern has been formed. However, a double top pattern is only considered formed after the the price has broken the support at the low of the trough between the two peaks. There are many variations of this pattern and thus a savvy trader or investor has to be flexible in applying the techniques to identifying the pattern. As the wise saying goes, “History likes to repeat itself, but it can repeat in many forms”

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After the brief introduction to the price movement of the double top pattern, we shall now explore the technical specifics of this pattern. There are guidelines to identify the best double top pattern. They are, prior trend, price peaks, volume, duration and support turns resistance.

#1 Prior trend: There must be a significant uptrend prior to the double top pattern.

#2 Price peaks: The second peak will not be resisted at the first peak exactly. As a rule of thumb, the difference between the second peak and the first should be within 4%, either more or less. We should not restrict the second peak to be lower than the first peak.

#3 Volume: The average volume traded at the second peak should be lower than the first peak. This signifies that when the market retest the old high, there is an obvious lack of participation as shown by the lower average volume. Without strong participation, the rally in price will not sustain.

#4 Duration: The best pattern will take anything from 1 month to 3 months to form. However, as mentioned, we should expect variations of the double top pattern and hence some may take a longer duration to form. Most importantly the essence of the formation must be present.

Figure 1: Example of a double top pattern found in STI chart.

Let us look at Figure 1 which shows a double top pattern found in STI chart. We had a significant uptrend from the low in August which ends with the first peak formed in October. A trough then forms in late October which leads to a price rally that took us to the second peak in early November. However, a quick check on the average volume shows that the second peak has a lower average volume as compared to the first peak. Once the price broke the low of the trough, the double top pattern is confirmed. Figure 1 also shows that the formation took about one month to complete.

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We can also derive price target base on the double top pattern. This will give the trader or investor an idea of where the price is likely to head to.

Figure 2: Example of projecting a price target

As seen in Figure 2, to project the price target of a double top pattern, firstly we measure the height of the peak to the low of the trough. Lastly, we project the height downwards from the low of the trough and derive the price target. With the price target derived, we will know the potential decline of the price.

Figure 3: Example of support turns resistance

When the double top pattern is confirmed and price had broken the low of the trough, investors can look forward to a retest of the low of the trough as a resistance. As seen in Figure 3, the low of the trough in May 2000 was a support before the second peak was formed. Once broken, that support has been retested as a resistance in May 2001. This retest if fails, offers an opportunity for investors to break jail before another leg down.

This article had discussed how to identify a double top pattern which is one of the major reversal patterns by paying attention to prior trend, price peaks, volume and duration. We also learn how to derive price target from the pattern and look out for a retest of the low of the trough from a support as a resistance.

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This article first appeared in Smart Investor in 2007.
DISCLAIMER: The contents in this website are for fun reading and must not be taken as a buy or sell advice. You must do your own analysis on top of my postings. By reading this blog, you agreed that i am not responsible for your trading.

Japanese Candlestick - Hammer

noreply@blogger.com (Unknown) — Thu, 02 Mar 2017 06:59:00 +0000

This article was written in 2007.

There are many types of price charts available today and one of my favorite is the Japanese Candlestick chart. They are very similar to bar charts except for the many reversal or continuation patterns which we can visually interpret from a group of successive candles found on the chart. These patterns reflect the change in psychology of the traders and are useful to identify turning points on the chart.

A candlestick is made of the candle body which denotes the opening and closing price and the shadows which denote the intra-period high and the intra-period low where the period can be one hour, 1 day, one week or one month. The color of the candlestick body tells us if the bulls or the bears won the day. Whenever a candlestick has a white body, it means that the bulls were stronger than the bears and managed to close the price higher than the opening price. On the other hand, a candlestick with a black body means that the bears were stronger than the bulls and managed to close the price below the opening price. Hence, just by looking at the color of the candlestick body, we are able to deduce which side of the market has won the day. As for the shadows (intra-period high or low), they give us a measure of how much territory the bulls and bears are willing to give to the other. In the case of long shadows, this also often reflects that there is a sudden and abrupt change of power between the bulls and the bears. For example, if Stock A open at $1.00 and during the trading day it went up to $1.30. With such a surge in price, the bulls are firmly in control as many would have expected. However, if by the closing bell, the stock price falls from the intra-day high of $1.30 to close at $1.00, this will leave a long upper shadow which starts at the candle body and ends at the intra-day high (assuming we are looking at a period of a day to draw the candlestick). For the price to fall from its intra-day high of $1.30 to $1.00, massive selling is required. This long upper shadow thus showed an abrupt and sudden change of powers from the bulls to the bears. The opposite is true for the lower shadow. In this case, the change of power is from the bears to the bulls and we get a long lower shadow.

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A Hammer is formed if the lower shadow is longer by more than 2 times the candle body. The upper shadow should be very minimal (smaller or equal to candle body) or even non existent. It has a small candle body which is very close to the upper shadow. Figure 1 shows an example of a Hammer pattern.

Figure 1: Example of a Hammer.

In order to use a Hammer pattern effectively, we have to identify the preceding trend before the pattern is formed. This is because while the pattern formed after a downtrend is known as a Hammer, the same pattern can be formed after an uptrend and is known as a Hanging Man. The interpretation is different. When a Hammer pattern is formed, we observe that the bulls are strong and managed to beat the bears by closing the price way above the low of the day. However, when a Hanging Man is formed, we interpret the pattern differently. We observe the long lower shadow as evidence that the bears are flexing their strength in the uptrend but the bulls still manage to stay in control and close the price way above the low during that day. When we trade a Hammer or Hanging Man, we want to see a white confirmation candle and a black confirmation candle respectively.

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Figure 2: Hammer with white candle confirmation

As seen in Figure 2, there was a preceding downtrend before we observed that a Hammer was formed which is then followed by a white candle confirmation.

Figure 3: Hanging Man with black confirmation

In Figure 3, the price was moving in an uptrend before being interrupted by a Hanging Man pattern. A black confirmation candle then formed and the price began to retrace.

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After learning how to interpret Hammer and Hanging Man patterns, we are going to explore another way of using this Hammer pattern to our advantage with or without the white candle confirmation. Since Hammer and Hanging Man reflects a strong change in power between the bulls and the bears, it will be very effective if we can spot them near support or resistance levels. These can be determined either by trend lines, Fibonacci, moving average and so on. Alternatively, we can use an oscillator like RSI or Stochastic together with the pattern too.

Figure 4: Example of Hammer resting on support

In Figure 4, we show how to interpret a Hammer pattern together with both the 50 day moving average and the Stochastic indicator. Firstly, the price had been trading lower since early April'07 and a Hammer pattern was formed (denoted by the small arrow). It was then observed that the end of the lower shadow sits on the 50-day moving average. As moving average can be used as support or resistance, in this case, we say that the price is supported by 50-day moving average. Lastly, Stochastic indicated oversold level has reached. When the stochastic is in oversold, there is a possibility of the price moving up. Hence with the Hammer pattern indicating a strong change in power from the bears to the bulls and with the moving average supporting the price and Stochastic indicating oversold, the probability of the price turning higher is very high.

In this article we have learnt how to interpret candlestick patterns namely Hammer and Hanging Man. Also, we have discussed how we can combine this analysis with indicators to give us an upper hand in trading.
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This article first appeared in Smart Investor in 2007.
DISCLAIMER: The contents in this website are for fun reading and must not be taken as a buy or sell advice. You must do your own analysis on top of my postings. By reading this blog, you agreed that i am not responsible for your trading.

Swing trading with candlestick charts

noreply@blogger.com (Unknown) — Thu, 09 Feb 2017 04:38:00 +0000

This article was written in 2009.

The Japanese Candlestick chart is currently the most popular price chart. It is interesting to know that the Japanese Candlestick chart had been used in Japan since the 18^th century. It was developed by a Japanese rice trader named Munehisa Homma. Munehisa Homma, considered one of the most successful traders in history, claimed that the psychological aspect of the market was extremely critical to trading success. The emotions of traders were reflected in the prices and showed in the candles.

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A candlestick consists of the candle body and the shadow; the body denotes the opening and closing price whereas the shadow denotes the intra-period high and intra-period low. The period can range from one hour, one day, one week to even one month depending on the time period. The color of the body depends if the bulls or bears have won the period. If the bull has won and the closing price is higher than the opening price, then the body is white in color. If the bear has won, which means that the closing price is lower than the opening price, then the body is black in color. Therefore, with just a glance, a person can easily see if the bull or bear has won within a period.

A candle pattern can be a single candlestick or multiple candlestick lines. Most candle patterns are inversely related. For each bullish pattern, there is a similar bearish pattern. The primary difference is their position relative to the prior trend of the market.

In this article, we will study two single candlestick reversal patterns: The Hammer and the Hangman.

The Hammer

Hammers are found at the bottom of a downtrend. For the past few days, the bear was very strong and was victorious in the battle, thus, a number of black candles appeared and the price trended down. One fine day, when the bear was expected to win the day again, the bull appeared out of nowhere and ambushed the bear! This shows that the market has a very bullish feel about it, hence chances of stock price changing to a short term uptrend is higher.

Figure 1: Hammer candle

There are several criteria that must be met:

- Hammers are usually seen at the bottom of the trend

- The shadow must be at least twice the size of the body

- Can exist in both white or black

- Very little or no upper shadow

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Figure 2: Hammer with white candle confirmation

As seen in Figure 2, there was a preceding downtrend before we observed that a Hammer had formed, which was then followed by a white confirmation candle.

Figure 3: Double Hammer with white candle confirmation

Figure 3 is another example of a Hammer. Instead of having a single Hammer, another Hammer appeared the next day, which signaled that the bull was fighting very hard to win the battle, thus signifying a bullish trend.

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The Hanging man

As the name implies, the Hanging man has a bearish connotation. The story is very similar to the hammer but with opposite roles. This time, the bear ambushed the bull and the market has a bearish feel to it.

Figure 4: Hanging man candles

There are several criteria that must be met:

- Hanging men are usually seen at the top of the trend

- The shadow must be at least twice the size of the body

- Can exist in both white or black candle

- Very little or no upper shadow

Figure 5: Hanging man candles foretell a bearish feeling

Figure 6: The Hanging man foretells a major retracement

Both Hammer and Hanging man candles look the same but appear in different trends. Look for the Hammer when stocks have been coming down and look for the Hanging man when the stock has been continuously going up. When the Hammer or Hanging man appears, it signifies a possible strong trend reversal.

The examples above are screened using ChartNexus software with XPertTrader (www.chartnexus.com). The Hammer and Hangman are two of the patterns that are taught in the ChartNexus Candlesticks Analysis (CCA) course. Apart from learning about various types of candlesticks patterns, ChartNexus trainers also educate participants on how to combine candlesticks analysis with various indicators to achieve the all-important upper hand in trading.

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This article first appeared in Smart Investor in 2009.
DISCLAIMER: The contents in this website are for fun reading and must not be taken as a buy or sell advice. You must do your own analysis on top of my postings. By reading this blog, you agreed that i am not responsible for your trading.

Bollinger Band - Trading on Volatility

noreply@blogger.com (Unknown) — Thu, 02 Feb 2017 09:42:00 +0000

This article was written in 2007.

With emerging markets like the Chinese and Indian economies growing at a fast pace and recording high percentage growth year over year, the bullishness has spilled over to the global stock markets with all major indices hitting new highs at the end of 2006. However, it is unlikely that the world indices will continue to scale up without any corrections. A classic example of a worldwide market correction occurred when the Chinese stock market recorded a near 9% drop in a single-day in Feb 2007. This together with the Yen Carry Trade triggered a chain reaction of global stock markets melt-down. Since then, global markets had a fast recovery with the likes of the STI index touching the 3500 points and the Dow Jones breaking the 13000 points barrier in April 2007. The example of global markets melt-down and fast recovery demonstrate how volatile the stock market can be. The willingness to take a higher risk is heavily linked to the fact that people are better educated and information is easily available with the help of the internet. Moreover, the one factor in the stock market that has not changed since its establishment is market psychology. The human psychologies of fear, greed and hope remain the main culprits of the high volatility in the stock market.

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The Bollinger Band, developed by John Bollinger, is widely used by traders to trade the market effectively. The Bollinger Band is constructed using 3 lines; the upper Bollinger band, the Simple Moving Average line (SMA) and the lower Bollinger band. The upper and lower Bollinger bands are usually placed at a distance of 2 standard deviations above and below the SMA respectively. Standard deviation is a mathematical term in which the value is proportional to the volatility of the price movement. SMA line is the averaging of the close price over a certain number of days. Hence, when the stock is trading sideway or the price volatility is low, the upper and lower bands will converge toward the SMA line. On the other hand, the upper and lower bands will begin to widen and move away from the SMA line when there is substantial fluctuation in the stock price. This article will look in the different ways that Bollinger Bands are used.

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The first application of Bollinger Band is its use in providing an indication of support and resistance level. As we expect prices to move in between the upper and lower bands, the upper band acts as a resistance level to more upsides while the lower band acts as a support level to more downsides. The following shows how the upper and lower bands provide support and resistance to the price movement.

Figure 1: Use of Bollinger Band as Support and Resistance

During the month of January 2007 to April 2007, FerroChina’s stock price was well-resisted by the upper band, refusing to break new grounds. On the other hand, during the price retracements in early March 2007 and late April 2007, FerroChina was able to find good support level at the lower band that prevented the price from diving further.

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The second application of Bollinger Band is in the powerful Bollinger Squeeze which trigger high probability buy and sell signals. The Bollinger Squeeze occurs when a stock protracted to a period of low volatility has the upper and lower bands appearing to be squeezed together. A buy or sell signal is generated when there is a Bollinger breakout from this squeeze of the lower and upper bands. Figure 2 shows the occurrence of the Bollinger Squeeze and the subsequent Bollinger breakout when the upper and lower bands begin to expand suddenly.

Figure 2: Bollinger Squeeze and Subsequent Bullish Breakout

During the period of January 2007 to March 2007, the big gap between the upper and lower bands shows that Hyflux was trading with high volatility. However in Apr 2007, Hyflux started trading sideways and as a result, the upper and lower bands contracted and squeezed together, indicating the occurrence of the Bollinger Squeeze. A Bollinger breakout then happened when both bands suddenly diverged with the price hugging the upper band thereby triggering a bullish signal. The reverse is true for a breakout to the downside. This is illustrated in Figure 3 where a Bollinger Squeeze was formed in April 2007 with the subsequent bearish breakout happening on 23^rd of April 2007.

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Figure 3: Bollinger Squeeze and Subsequent Bearish Breakout

We can further enhance the Bollinger breakout after the Bollinger Squeeze with another indicator thus increasing the probability of making a trade in the right direction of breakout. One popular indicator that can be used together with the Bollinger Squeeze is the Relative Strength Index (RSI) which was developed by J. Welles Wilder. The RSI is a powerful indicator used to measure the velocity of the price movements and the values are calculated based on the number of days that the price closes up and the number of days that the price closes down over a certain period of time. In this article, the period of time used is 14 days which is originally proposed by Wilder. Let us re-visit the earlier chart (Figure 2) which featured Hyflux where a buy signal was generated by Bollinger Squeeze on the 25^th Apr 2007. An analysis of the RSI indicator shows that the RSI was well supported during the Bollinger Squeeze and was trending upwards as the price approaches Bollinger breakout. This signifies that the price action remain firm throughout the Bollinger Squeeze and it grew in strength as breakout came beckoning. Figure 4 shows the chart of Hyflux using RSI indicator in conjunction with Bollinger Band.

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Figure 4: Usage of Bollinger Squeeze with the RSI indicator

The above scenario of combining RSI and Bollinger Band in our analysis can be easily captured by using an automated software program which could save a significant amount of time from looking for these opportunities. One such software is ChartNexus XPertTrader (www.chartnexus.com) that can be used to automatically screen the whole market for stocks that have Bollinger Squeeze together with the RSI trending higher.

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This article has highlighted the importance of understanding the volatility of the stock market in order to make profitable trades. A powerful indicator such as Bollinger Band is widely used to identify buy and sell signals based on two applications. The first involves using the bands as support and resistance with the second involving looking for a Bollinger Squeeze followed by a Bollinger breakout.. Combining Bollinger band with the RSI indicator also increases significantly the probability of the signal being valid.

This article first appeared in Smart Investor in 2007.

Continuation Patterns

noreply@blogger.com (Unknown) — Wed, 18 Jan 2017 02:48:00 +0000

This article was written in 2007.

In the last issue we shared how to trade short term price patterns. In this article we will share another form of price patterns known as the triangles or continuation patterns where price is expected to breakout after consolidations. They are also well known as intermediate or near term patterns. Although they are essentially continuation patterns, but sometimes they act as reversal pattern as well. Let's begin our discussion with a introduction to ascending triangle.

The ascending triangle will have a flat resistance and a series of higher lows. While the price met with resistance at one particular price, it must be observed that buyers are very keen and that the dips from the resistance is higher one after another. Breakout happens when the resistance finally gives way. Ascending triangle breakout is biased to the upside and one should note where the breakout occurs. The best breakout of triangles happens away from the apex of the triangle.

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Figure 1: ascending triangle example

As shown in Figure 1, the price chart of Boustead shows a resistance at $2.03 thereabouts. For 3 months from Apr'07 to Jun'07, it is unable to breakout from this resistance. However, it must be noted that the price retracement from the resistance achieved the higher low characteristic. This is a very bullish sign as it meant that investors are very keen to buy and the buying pressure is strong as the price is unable to trade lower. On late June'07, the price broke out of the resistance and went on to new high. Do note that it is away from the apex of the triangle.

Second in line is descending triangle. As the name suggest this price pattern is biased to the downside. Instead of a flat resistance as in the case of an ascending triangle, for a descending triangle we will be looking out for a flat support. The price will have seem to have found support at a particular price and that gives investors an impression that the price seems to be holding at this level very well. Not obvious to the untrained eyes, every price rally is actually getting lower. Then a breakout to the downside will catch investors unaware.

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Figure 2: descending triangle example

As shown in figure 2, the price chart of Unionmet shows a flat support at $0.51 thereabouts. For nearly 3 months, the support gave a false sense of security to investors because while the support is holding well, every price rally is getting lower and lower. It is suggesting strong overhead selling at every rebound. Investors should be cautious of such characteristic. This is a very bearish sign as it meant that investors are very keen to sell and the selling pressure is strong as the price is unable to trade higher. In middle of Jul'07, the price broke out of the support and went on to new low. Do note that it is away from the apex of the triangle.

Last but not least, symmetrical triangle. This price pattern can breakout either to the upside or downside. Price will trade lower high as well as higher low, converging towards the apex of the triangle. It's like the buyers and sellers are very balanced in power and the price was traded in a converging manner until a breakout to either side happens.

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Figure 3: symmetrical triangle example

As shown in figure 3, the price chart of HiapHoe shows converging lower highs and higher lows. While the ascending and descending triangle pattern dictate the market tone, where it is bullish and bearish respectively, symmetrical triangle dictates a balance between buyers and sellers. Hence it is only after a break to either side then only can we conclude whether it is trending higher or lower. From early Nov'07 to late Dec'07, we can see that every price rally is lower than the previous attempt and every price retracement ends up higher than the previous. A breakout to the upside then occurs in late Dec'07.

There are other essential factors to consider when we are trading triangle patterns. The best triangle is formed between one month to not more than three months. The volume should be drying up as the price trades towards the apex of the triangle. Upon breakout of the triangle pattern, volume should be significantly higher. It will be even more bullish if the price gaps up in the breakout.

In this article we have discussed the 3 types of price patterns known as the triangles. Breakout of triangles should not be too close to the apex and that it should be accompanied with heavy volume. The time taken for the triangle pattern to form should be between one month to 3 months typically.

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Follow The Flow of Money

noreply@blogger.com (Unknown) — Mon, 16 Jan 2017 01:00:00 +0000

This article was written in 2007.

What a bull run! Singapore Stock Market together with the rest of the global indices are breaking record highs after the late February 2007 scare by Shanghai bourse where they fell more than 10% on that fateful day. The same night, Dow Jones reacted negatively at open but it was a late technical glitch on their system that lead to a massive selling that rocked the markets across the globe in the following weeks. A lot of money was lost by this sudden debacle as investors sold into panic. Those who held on to their shares emerge as victors as we saw the market rebounds to great heights. However, was it blind faith or powerful hoping skills that they emerge as winner? Market exuberance is notoriously known to puncture any bull run in spectacular fashions. We are already in the 4^th year of the bull market which started in mid 2003. Along the way, we read and heard warnings about market exuberance and how the bull run would soon end. However, this bull market’s resiliency caught many bear advocates by surprise as we went on to break new high after new high. The truth is, no bull run will go on forever. These bear advocates will be finally right one day after many wrong calls. However, rather than playing this guessing game or arguing our lungs out with different opinionated fellow investors, we can be well informed to protect our investments. Knowing a simple indicator known as Money Flow Index will keep us well informed. The objective of this article will seek to arm the reader with a time tested method in identifying the reversal of an uptrend thus protecting their investments.

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The Money Flow Index (MFI) is a momentum indicator that is similar to the Relative Strength Index (RSI) in terms of interpretation and calculation. The only difference is, MFI is volume weighted and hence is a good measure of the strength of money flowing in and out of a stock. RSI only takes the price actions into calculation and missed out the essential of technical analysis, volume. Volume combines with price actions will give us a good picture if money is flowing into or out of a stock. We certainly do not want to be in the dark if money is flowing out of a stock we owned. MFI compares "positive money flow" to "negative money flow" to create an indicator that can be compared to price in order to identify the strength or weakness of a trend. It is measured on a 0 - 100 scale and is often calculated using a 14 day period.

The MFI can be interpreted much like the RSI in that it can signal divergences and overbought/oversold conditions.

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Divergences

Positive and negative divergences between the stock and the MFI often indicate the imminent reversal of a trend. If the stock price is rising, but there is more volume associated with daily price drops than with the price rises. This suggests a weak uptrend that threatens to reverse as money flowing out of the stock is "stronger" than money flowing into it.

Figure 1: Negative Divergence between Price and MFI

Figure 1 shows the chart of Jurong Technologies Industrial Corpn Ltd (JurTech) which has depreciated nearly 60% in value. As the price of JurTech edges higher from May’05 to Sept’05, MFI recorded a lower high reading. While the uninformed investors are celebrating the new high, well informed investors are wary of the negative divergence happening on the weekly chart. No prize for guessing who will be able to better protect their investment. Following the divergence, Seagate made an acquisition of Maxtor who was JurTech major client at that time, market didn’t take the news too well and thus the uptrend reverses and the downtrend began.

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Figure 2: Positive Divergence between price and MFI

In figure 2, Ouhua prices reach a new low in Mar’07. However MFI records a higher trough in Mar’07 as compared to late 2006. This is known as the positive divergence. While many investors would like to buy cheap, unfortunately, many ended up catching a falling knife where the stock became cheaper after they bought. The ability of identifying a positive divergence will highly increase the probability of catching a bottom.

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Overbought/Oversold

As with the RSI, the MFI can be used to determine overbought or oversold. A stock is considered "overbought" if the MFI indicator reaches 80 and above and a reading of 20 and below suggests a stock is "oversold". However, when a stock is in a strong trend, it is less likely to have oversold reading. Similarly, it may stay overbought during a large part of the trend. Hence it is also important to identify the support or resistance for MFI.

Figure 3: MFI Support

As shown in figure 3, the uptrend for Capitaland which started in early August was well supported by the MFI. Each pull back in price is supported by this MFI support. It must be observed in this trend that MFI did not record a oversold reading for a good eight months. We know that in a healthy uptrend, price retracement is only good for the overall trend. Hence whenever the price pulls back and the MFI reaches the support level, investors have a high probability entry signal.

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Figure 4: MFI Resistance

Figure 4 showed how the price movement of Seksun was resisted and the MFI had also met resistance. The first peak of the MFI in Jan’07 showed that the stock price retraced. Subsequent stock price retracement in late Feb’07 showed that the peak of the MFI also matched the peak in Jan’07. From here on, we would expect this level of MFI to form a resistance and that price retracement will can be expected. Hence in late May’07, with MFI trading near the resistance level, it is noted that the stock price was unable to close higher.

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This article has highlighted how MFI can be used to identify weakness in an uptrend or downtrend through divergences. Readers can now better anticipate and act to protect their investments. MFI can be further used to identify support and resistance levels where stock price is expected to react thus enable investors to time their entries or exits with higher probability.

This article first appeared in Smart Investor in 2007. DISCLAIMER: The contents in this website are for fun reading and must not be taken as a buy or sell advice. You must do your own analysis on top of my postings. By reading this blog, you agreed that i am not responsible for your trading.

Understanding Price Gaps

noreply@blogger.com (Unknown) — Tue, 10 Jan 2017 08:52:00 +0000

This article was written in 2007.

Overnight closing on Wall Street, ground breaking news and surprising positive or negative announcements never fails to excite investors. Stock prices responded by bursting into the perceived direction in an explosive manner as investors poured into the market. This exuberant mood resulted in a vacuum between the last traded price and the previous. In technical analysis, this vacuum in price is known as a price gap. There are 3 types of price gaps worthy to look into and we shall study their characteristics and discuss how to trade them.

A gap occurs when the lowest price of a specific period is above than the highest level of the previous trading period. The specific period can be that of a daily chart, weekly chart or any other time frame. The gap is represented by an empty vertical space between one trading period and another. It can be formed by overnight good or bad news disseminated by the market. A gap is considered “closed” when the price retraces the whole range of the gap. By definition, all gaps will be closed. However it is noted that while many gaps are closed within days or weeks, there are some which took months or years to close. You can only imagine how much the price has to retrace to close a gap many months later. Price gap is a result of irrational decision to buy or sell at any price the equity is trading at and hence when rational thinking returns to the investors, they will start to unwind positions and thus lead to the closing of price gaps. Trading strategies can then be deployed in anticipation that the price will close the gap either partially or completely.

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A breakaway gap is created when the price breakout from a chart pattern. Generally, price gap symbolized the bullishness or bearishness of the breakout as per the direction. It will be useful if we combine this analysis of breakout with volume confirmation. Typically we would like to see breakout to the upside with heavy volume. However, breakout to the downside does not require heavy volume.

Figure 1: Breakaway Gap

In Figure 1, Aztech formed an ascending triangle price pattern which is bullish in nature. It broke out of the price pattern accompanied by a price gap up. As an ascending triangle is biased to the upside, the breakaway gap added more bullishness in the direction. It must be noted that the volume accompanying the breakout is high as well.

A Continuation gap occurs during a sharp price movement in advance or decline. This type of gap often occurs halfway between a previous breakout and the ultimate duration of the move. It is normally accompanied with positive news and investors reacted to it in an exuberant manner.

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When a price contains more than one runaway gap, it indicates that the trend is very powerful. However, market participants should be wary if there is a presence of a second or third gap as this is a sign that the move is likely to be out of steam soon. There is a possibility that a second or third runaway gap may be the last one. Hence an exhaustion gap is associated with the termination of a preceding move and is the last in a series of runaway gaps. One good clue would be to look at the volume. Exhaustion gap is normally accompanied with unusually high level of volume. It is important to note that, exhaustion gap signals a likely price consolidation after the termination of a move and may not regarded as a major reversal.

Figure 2: Continuation Gap & Exhaustion Gap

As shown in Figure 2, after Genting International had been awarded the Sentosa IR project, investors reacted positively and price gaps up on 11^th Dec 2006. In the same month, stock price continues to gap up as investors continues to savor the happy occasion and great expectations from the news. At the third gap up (exhaustion gap), it was observed that the volume was much higher. Investors should be cautious by now as this is a warning of a potential exhaustion gap and price consolidation is a possibility.

Figure 3: Continuation Gap with high volume

Osim as shown in figure 3 had a first gap down in late Oct 2006. 3 month later it had another gap down accompanied with unusually high volume. It qualifies as an exhaustion gap as this is a second gap and since it comes with high volume. Price then went into consolidation as what is expected from an exhaustion gap. This consolidation lasted 3 months to late April before the price gaps down again.

This article has discussed 3 types of price gaps and how we can use them to aid in our analysis. Breakaway gap is most useful if there is a preceding price pattern. Continuation gap which extends the preceding movement may lead to exhaustion gap which in turn may hint of price consolidation ahead. Lastly, volume is a big clue in identifying an exhaustion gap.

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This article first appeared in Smart Investor in 2007.

DISCLAIMER: The contents in this website are for fun reading and must not be taken as a buy or sell advice. You must do your own analysis on top of my postings. By reading this blog, you agreed that i am not responsible for your trading.

Fibonacci Retracement – Waiting for the Right Moment

noreply@blogger.com (Unknown) — Fri, 06 Jan 2017 05:03:00 +0000

This article was written in 2007.

IT has been 3 years since the Singapore stock market begun its amazing bull run, scaling to new highs and reaching the all time high of more than 3600 points in June 2007. The exponential increase in trading volume in the stock market shows that more and more beginners may be getting involved in stocks. Most are looking for big rewards and are determined to make a killing to profit from this bullish market. However largely unknown to beginners, the lack of a comprehensive trading strategy or technical knowledge in analyzing the behavior of the stock market is leaving them exposed to high risk. On the other hand, most experienced traders understand the behavior of the stock market well and would know how to anticipate price movements in any given time frame. For example, some stocks would form a chart bottom formation before resuming the uptrend while some stocks with stronger bullish sentiment would resume its uptrend ferociously. Either way, the experienced traders would know how to identify when is the best time to take up positions where there is lesser risk. Therefore, it is crucial for beginners to learn some form of technical analysis so as to time their trades better. No one likes to buy high and sell low, but not many know how to buy low and sell high. This article will introduce an effective tool that will help identify the chart bottoms and the best time to enter the stock market. This tool is well known as the Fibonacci Retracement levels. Last but not least, we will also discuss how Fibonacci Retracement can be used to manage and minimize risk in the stock market.

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The Fibonacci sequence is a series of numbers that were first derived by Leonardo of Pisa in the 15th century after observing the population expansion of a pair of rabbit. Recognising the importance of Fibonacci numbers to real-life application, mathematicians derived the Fibonacci Retracement levels for trading in the stock market; the latter levels being made up of 6 percentage numbers or lines. Depending on the preferred trading period of the trader, the Fibonacci Retracement lines are drawn for an uptrending stock by first identifying the bottom and then the top. After the identification of the bottom and then the top, we start to calculate the retracement levels between the highest price and the lowest price. Nowadays, this can be done by a simple click of the mouse. Most charting software in the market allow you to draw the Fibonacci Retracement levels effortlessly. ChartNexus is one such tool which also comes with free end of day data for download. The fibonacci retracement levels commonly used are 23.6%, 38.2%, 50% and 61.8% with the most significant levels being 38.2%, 50% and 61.8%. As the saying goes, what goes up must come down. In an uptrend, a stock will make higher high and higher low. Fibonacci Retracement is used to identify the price level as it retraces to a higher low before testing the higher high. The first possible level of support for a retracement is usually the 38.2% line. The following figure below illustrates how the 38.2% line is effectively tested as support in the chart of China Energy.

Figure 1 China Energy rebounded off 38.2% level

In the figure above, China Energy began to pullback after forming a top from May 2007 to early June 2007. On 12^th June 2007, the stock tested the 38.2% level and subsequently rebounded off the level. Again, from 24^th to 25^th June 2007, the stock tested the 38.2% level a second time and rebounded off it. 38.2% in this case served as a very strong support for China Energy.

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The following figure shows Tech Oil & Gas rebounding after hitting the 61.8% line.

Figure 2 Tech Oil & Gas rebounded off 61.8% level

However, the 61.8% line is also known as the last line of defense for the stock price. A break below the 61.8% line usually means that the uptrend of the stock is negated. In Figure 3, Luzhou broke the 61.8% line on 1st March 2007 (in red) and the stock price went down further thereafter.

Figure 3: Using Fibonacci Retracement lines as support and resistance level

As observed from Figures 1 & 2, Fibonacci Retracement Levels offer very strong support or resistance to the price movement. In Figure 3, we can see that Luzhou’s stock prices were able to find good support at the 50.0% line from Oct 2006 to Jan 2007. However, in the month of March the 50.0% line turned from support to resistance, resisting Luzhou’s price from heading higher. Similarly in the month of April, Luzhou’s price found resistance at the 61.8% line and went into a downtrend shortly thereafter.

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The Fibonacci Retracement levels can also used in conjunction with other indicators to help in analyzing the stock chart. This is known as confluence of signals. The combination of other indicators further enhances and compliments the usage of Fibonacci Retracement levels thus resulting in higher probability of a successful trade. In this article, one of the popular indicators used by many traders, the 100-day moving average is used to analyze the stock chart of Tech Oil & Gas which is shown in Figure 4 below.

Figure 4: Using Moving Average with Fibonacci Retracement level

Figure 4 clearly shows that the prevailing trend of Tech Oil & Gas is an uptrend and that the price found support on the 100-day moving average from May 2007 to July 2007 . The next observation is that the price was trading near the 61.8% Fibonacci Retracement level. While the 100-day moving average is supporting the price movement, Fibonacci Retracement is also providing support at the 61.8% level which is about the same price level as the moving average line. Hence the price is said to be very well supported because we have the confluence of two types of analysis, namely moving average and Fibonacci levels.

This article has highlighted the importance of understanding the stock market behavior in order to enhance one's timing of the stock market. A powerful tool such as Fibonacci Retracement is widely used to identify possible support and resistance to the price movement. This helps experienced traders to buy low and sell high. In addition, the usage of the Fibonacci Retracement line together with the concept of support and resistance level and the confluence with the 100-day moving average helps to forecast the possible price movement and increases one’s confidence to take the trade.

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This article first appeared in Smart Investor in 2007.

DISCLAIMER: The contents in this website are for fun reading and must not be taken as a buy or sell advice. You must do your own analysis on top of my postings. By reading this blog, you agreed that i am not responsible for your trading.

Determining the direction and strength of trend

noreply@blogger.com (Unknown) — Thu, 05 Jan 2017 04:07:00 +0000

This article was written in 2007.

One general rule of thumb in trading is to identify the trend of the stock market. There are 3 types of trend namely uptrend, downtrend and sideway, representing the overall mood of the stock market. In any trend condition, an uptrend, downtrend or sideway represents the mood of the stock market is bullish, bearish or trendless (sideways) respectively. Hence, the trend is commonly determined to help establish a basic analysis for traders to take up long or short position in any stocks. Normally, in a bullish mood or an uptrend, buyers are more likely to take up a long position and buy stocks at higher prices thus pushing the stocks prices to go up. In addition, when the trend is determined, trader can identify the tops and bottoms of the stocks for buying or shorting opportunities. Most traders prefer to trade along the trend as the rise or fall of the stock prices can be anticipated easily and hence reducing risk exposed in the stock market. In the situation of an uptrend market, there are more days the prices of stocks are going up compared to down. Whilst in a downtrend situation, it is the direct opposite. Therefore by following the trend, the probabilities of positive returns could be increased. Moreover, by first determining the trend, traders can plan out effective trading strategies before putting up a position in the stock market. However by determining the trend alone usually may sometime deemed as inadequate to help traders to enter a position in any stocks. Most traders would also like to confirm the strength of the trend to further increase their probabilities of positive returns. The stronger the trend, the higher the probability of riding the trend successfully. Moreover, confirming the strength of trend could help traders to identify any sign of trend reversal. A weaken trend strength would probably indicate the end of the current trend and start of a new trend, which means the beginning of either downtrend or sideways. Thus, this article will look into how trends can be identified and the major technical aspects of the indicator in determining the strength of the trend.

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Trend analysis used to determine the trend can be quite complex. Factors like defining the appropriate time frame and the ability of drawing useful trendlines contributes to the complexity. Nevertheless, there are a few trend analysis popularly used by many traders to determine the current trend. Methods like drawing trendlines and using technical indicators can be utilized to ascertain the trend. Basically trendlines are drawn by connecting 2 points together in a chart - an uptrend line is drawn by connecting 2 points of higher lows and extends to the desirable time frame while a downtrend line is drawn by connecting 2 points of lower highs and extends to the desirable time frame. There are 3 common types of trendlines and they are classified into short-, intermediate- and long-term trendlines as shown in the chart below.

Chart 1: The drawing of Short-term, Intermediate-term and Long-term trendlines

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A few technical indicators commonly used by technical analysis (TA) practitioners are the Moving Averages (MA) lines (normally 50 Days / 100 Days MA) and Guppy Multiple Moving Averages (GMMAs) lines. The MA lines make use of the simple moving average to indicate the direction of the trend. The MA lines sloping up with prices of the stock above is seen as an uptrend while a downtrend is the opposite. In a trendless market, the 50 days and 100 days lines are seen together as a horizontal line. Meanwhile, the GMMAs make use of 3 sets of the exponential moving averages (EMA) lines to indicate the trend. The 3 sets of GMMA lines consist of short-term, mid-term and long-term EMA lines. In an uptrend, all 3 sets of EMA lines would normally slope upwards with the short-term EMA lines above the mid-term EMA lines while the mid-term EMA lines are above the long-term EMA lines. On the other side of uptrend, the downtrend will have all 3 sets of EMA lines sloping downwards with the short-term EMA lines being the lowest followed by the mid-term EMA lines. On a trendless period, the 3 sets of EMA lines will often be noticed as a single horizontal line. The following chart shows the indication of trend by MA lines and GMMAs.

Chart 2: The identification of trend using MA lines and GMMAs

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After exploring the methods in identifying the trend, this article will next discuss the most popular indicator used by most TA practitioners; the Average Directional Index (ADX) which measures the strength of the trend effectively. The ADX indicator was developed by J.Welles had been the favorite indicator used by among most traders to assist them in measuring the strength of the trend. The ADX indicator is an oscillator that usually consist of 3 lines; the +DI line, the -DI line and the ADX line. The ADX line is a derivative of +DI and -DI which provides the reading that fluctuates between 0 and 100, indicating the strength of the trend. A reading of below 20 indicates a weak trend whilst a reading above 40 indicates a strong trend. In addition, an ADX reading strengthen from below 20 and moves above 20 may signify the end of a trading range and a trend could be developing. On the other hand, an ADX reading falls from above 40 and moves below 40 could signify the current trend is losing strength and a trading range may develop. Some TA practitioners use the reading from the ADX to identify the potential changes in the stock market from trending to non-trending. The following chart shows how the ADX indicator measures the strength of current trend corresponding to a particular stock.

Chart 3: The direction of the trend versus the strength of the trend

In the above chart, it is coincidental that the ADX reading for the featured stock corresponded to a strong uptrend and the development of uptrend. However, it is important to note that the ADX reading does not point to the direction of the trend but merely the strength of a trend. For example, an ADX reading of above 40 could also mean that the strength of a downtrend is strong. The most basic form of using the ADX indicators can be generated when +DI line and -DI line crosses. A buy signal is generated when +DI line crosses over the -DI line whereas a sell signal is generated when -DI line crosses over the +DI. Nevertheless, many experienced TA practitioners found that buying or selling based on the crossover rule is insufficient as there are whipsaws and hence the accuracy of getting into the right trade based on crossover rule is low. Consequently, the experienced TA practitioners refine the crossover rule by considering the ADX reading as well. A cross up of +DI line over the -DI line with ADX reading between the +DI line and -DI line is often considered as a more accurate buy signal as shown in Chart 3 (orange highlighted). The other way around, a more accurate sell signal is considered when the +DI line cross down the -DI line with ADX reading between both the +/- DI lines.

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Finally, the identifying the direction of the trend and determining the strength of the trend played an important role when the traders want to take up a position in the market. The trend analysis and indicators make the traders' job in determining both the direction and strength of the trend easier and thus increasing probabilities and accuracy in entering into a good trade. Therefore, traders are exposed to minimum risk in the stock market while profits are maximized.

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This article first appeared in Smart Investor in 2007.

Nearly 6 years of hiatus from blogging...is it even still the in-thing?

noreply@blogger.com (decipher) — Fri, 22 May 2015 10:41:00 +0000

It is amazing how time flies...since the last post in 2009, it is about 6 years since i last shared on this blog. One day i will restart this again...my mind is willing but body is weak. I lacked the resolve to stay up late nowadays. I have to choose between family, business, trading, friends and blogging. Alas, blogging has to give way.

Trading has become reflexive after 10 years of doing it. There is a saying, mastery of a skill comes at the 10,000 hours mark which is about 10 year if you put in a few hours daily. Learning never stops so long trading never stops. I encourage you to keep trading. If you are losing, trade small but trade. Nothing beats learning from losing real money.

Perhaps i shall share more of what i observed from my own trading for the benefit of those who are learning... The last 6 years i continued to trade the SGX stocks. But at the same time, i started to explore more markets such as US stocks, stock Indexes like FTSE, Major currency pairs... This is only possible because i left my engineering job and joined ChartNexus.

Each market has its own flavour. For example, I would first observe the price action and how it trades at support and resistance. Make some mental trades and once i am "in-sync" with the market, i would then place my trade. Another example is US stocks, you could observe what is the pattern? Does the market close weak after lunch? Or does it close strong? Weak opening but strong closing? Strong opening but weak closing? Understanding these patterns will allow you to better time the "when" to buy.

Do i use indicators? Yes i do. I know they are lagging but they represent some useful statistics if you understand the indicator. For example, if you are interested in stocks which are trading in tight range and there are more buying then selling...there is an indicator for this. Once they breakout from this indicator, it is a buy. The next direction is a result of what had happened before today. So if you have a screener which can pick up stocks exhibiting the price behavior you are looking for, then you could trade these stocks at the right moment.

For forex, my approach is determining the direction of the pairs by comparing with other major pairs and then technically from bigger time-frame charts such as weekly, daily, 4-hour and then take my trade on the hourly and 30-min chart. This is called multi-time frame analysis. News is essential to know when trading forex as it can wreak havoc on the announcement days. A bullish chart can suddenly become bearish and vice versa. I recommend strong knowledge on chart patterns when trading forex.

Here are some of the moments i collected to share with you. I hope you are inspired and encouraged. Remember, i once started out as a losing trader. You can read my posts in 2005.... If i can do it, so can you. Just keep trading keep learning.

Dubai shocker and what i will be doing

noreply@blogger.com (decipher) — Sun, 29 Nov 2009 14:24:00 +0000

On this night, i shall write about my thoughts on the latest market shocker... Dubai to delay payment on its US$60B debt. Global markets had already been greatly shaken. STI will open Monday and it's direction is highly anticipated to be down, the magnitude is everyone's guess though. Next question will be... is this Dubai a non-event? Or a perfect reason for prices to pull back? Is this the end of the bull?

Firstly, my opinion on the fundamentals is, US$60B is chicken feed for UAE to rescue it. Surely we saw how the government in a concerted efforts print hundreds of billions in 2009? Also oil-rich state? How to go belly up? Then the news say, it's the repercussion that they are worried about. Hmm... recent years, i didn't read about any major interests in that city... they are neither key exporters or importers in global economy. however, as a green horn, i shall watch how the market reacts to it.

STI breaks 2700 points... should i be happy since in my earlier posts i had anticipated it to give way? Happy i am not because only the banks are moving higher. The rest of the sectors were lacklustre. In addition, my own portfolio basically at a standstill... near breakeven level only or sometimes swing slightly into negative. Like i say, if my portfolio didn't grow money, i know i am still not right as yet. What awaits me this coming week will be daunting.

Daunting because i have two choices, do i run my stocks? (SGX, CDL-HTRUST, Hyflux) or do i look to long? Maybe i should short? I am tempted to set up a very complicated hedge where i short some on Monday to hedge my longs. But i do not have the luxury of time. These days alot of travelling, you have a higher chance of meeting me in KL than Cityhall. Thus, i have decided to stick to my stop loss levels. If time permits, i will post in coming days. In time of chaos, only technical levels is what i can depend on for surely if i were to trade by opinion, i may bleed. So this takes care of my current stocks.

Now if this is just a blip the market is looking for, it is a glorious opportunity to load more into the year-end rally. If stocks do not breach my cut loss, and reverse from near support, the risk/reward favours a long. Even if i am wrong, the stop loss is nearby. But if i am right, the reward outweighs the risk.

How about shorting? Yes, i will not hesistate to liquidate my longs and turn short if those significant support levels are compromised this coming week.

Sorry that i disappoints anyone who is used to this blog...as recently, i have other priorities to take care of. If got good opportunities, I will update via here. If you are a graduate, do use the forum, i will give my two cents there more often.

DISCLAIMER: The contents in this website are for fun reading and must not be taken as a buy or sell advice. You must do your own analysis on top of my postings. By reading this blog, you agreed that i am not responsible for your trading.

Supports are still holding

noreply@blogger.com (decipher) — Wed, 04 Nov 2009 14:22:00 +0000

Hello everyone, i'm sure you have noticed the decrease in frequency of me updating on the market. To the minimum, i'm trying to update at least once a week. This is the best i can offer as i no longer have the energy to multi-task so many things. Thus, the weekly update would be the most significant as we look beyond the daily noise. There are many methods to make money in the stock market, some like the excitement of intra-day trading, some may like to contra but i like to ride trends and trade according to market directions.

Many months ago, I was busy shorting a bull market at it's infancy stage, each time i covered my shorts, i would often time have to turn long to cover back my losses. As soon as the market turns soft, i would try to short again. In short, it is by far a "eat pig, pay dog" experience. Few weeks back, there was a Saturday night where i spent hours reading my trading diary in 2006... and i saw how i learnt from the market and what were my mistakes. One particular obvious way which i made the most money was from riding the trends of strong sector. Not only that, my game plan was solid as i build a portfolio of stocks from leading sectors. Fast forward to this year, i was more of a maverick. To be honest, i even traded FX earlier this year. Yes i made money from it but my eyes were on the screen for more than 16 hrs a day. I have to watch my positions from 8pm to 11pm... then wake up at 4am to make sure the market didn't suddenly turn against me. On active nights, i will be watching it till the wee hours. Months later, i begin to question my lifestyle. Did i enjoy the experience of following HK, SG stocks in the day time, then US market at night? As for FX, it supercedes both time zone starting at 2pm. My answer is no. It was so laborous that it killed the fun factor. In anything we do, the fun factor must be there, otherwise we will not enjoy it. I made my money from the stock market before and i know how it feels and how it is done. It certainly didn't feel this way when i overtraded too many markets, too many instruments. Thus i thought it made sense for me to do what i know best - stocks.

One of the reasons i like trading the stock market is, I can still enjoy life while my money grow in the market. I can be out the whole day either leisure or business and not worry about my positions. This is the benefit of my method. It is not a get rich quick method but a consistent method to grow money from the market while having a healthy life outside the speculator in me.

Orite, lets talk more about what you like to read most - the current market. The above is just an avenue for me to share my experience which may save you from a few obstacles in trading life. I am still vested in Hyflux and CDLHTrust. Like i say in the last two posts, so long the support of broad market doesn't crack, it is still a bull market to me. The index has to correct as the chart looks bearish, but i notice majority of the stocks are still there, nothing much has changed, they are only stuck in a range. If i want to play this range, i would rather long as close to support than to short at resistance. Because, in a bull market support will hold, in a bear market resistance will hold. You ought to have a view and trade it.

Then the big question, why did i not add more positions? Simple! If i do not see both my stocks swing into deep profits, it means my prognosis is not correct yet. Why increase the risk by adding a third position? If the market proves me wrong, instead of losing 2 positions which is still kept under my money mgmt rule, i would have lost more than what my rule allows me with the third. Thus, in this market, my risk appetite is only 2 positions at most. But once they break new high, i will be hunting for the third purchase. Meanwhile, the waiting game continues....

I am waiting to see either of the following:

1. First batch of buy signals to rally to new highs
2. Resistance level of one particular sector cracked
3. STI at it's support and resistance relative to the broadbase market

DISCLAIMER: The contents in this website are for fun reading and must not be taken as a buy or sell advice. You must do your own analysis on top of my postings. By reading this blog, you agreed that i am not responsible for your trading.

Watching Property sector carefully.

noreply@blogger.com (decipher) — Mon, 26 Oct 2009 14:26:00 +0000

STI went jelly legs but can i complain? At least we went the opposite of the "expected" sell-off after a horrid Dow closing last Friday. Things i like currently is selective plays are still alive. Bluechips though dead and quiet for some time but i can start to feel it coming. So long the supports are holding across most stocks, especially bluechips. This is a bull market to me.

As my title suggest, this is the one sector caught my attention purely on T.A. As we all know, the recent news about the property sector is prices are softening. Today i saw how nice Capland and Citydev moved, i cast my eyes on Hobee and Hongfok. Both stocks came up in my XPertTrader screening. However, i am seeing mixed trading from last week's results and thus this is inconclusive if we are breaking higher. The only consolation i seek is STI is above 2700. It will be interesting if i see the prop sector leads STI convincingly.

I am still holding on to CDL and Hyflux. Nothing uncomfortable abt the stocks yet and i am in no hurry to sell. Perhaps when either one swings into deep profit, i shall offload the underperforming other. Which will allow me to quickly snap up the next opportunity.

DISCLAIMER: The contents in this website are for fun reading and must not be taken as a buy or sell advice. You must do your own analysis on top of my postings. By reading this blog, you agreed that i am not responsible for your trading.

Look out for the next hot sector

noreply@blogger.com (decipher) — Sun, 18 Oct 2009 13:19:00 +0000

Stubborn 2700 was taken down finally last week. It is highly important to me that we stay above it this coming week. What we are seeing now is that it is coming down to test the previous resistance as support. Faith will be tested. Should investors sell in earnest, then it may bring us below 2700 once again. What i think is we need a strong upward movement motivated by a strong Dow to set us up for an uptrend. Plenty of important results are up next. It seems like companies are continuing to beat estimates. This sets me thinking....

I have one trading idea to share. That is to search for the sector which delivered the most solid result last reporting quater. Their charts may be consolidating now waiting for the next annoucement and we must beat the market to it by discovering it and buy it first. For i notice, before the result is anounced, the share price may have already rallied.

I am still holding on to my CDL and bought Hyflux during last week's weakness. I akin Hyflux's movement to be that of a healthy retracement to test resistance turn support after A-Triangle breakout. CDL though still on an uptrend and from the charts, nothing too bearish as yet. Keeping my fingers crossed that Monday's weakness will not be too large a magnitude. If it is just morning sickness and afternoon glory, perhaps, it is a bullish sign.

The hunt for the next hot sector is on!

DISCLAIMER: The contents in this website are for fun reading and must not be taken as a buy or sell advice. You must do your own analysis on top of my postings. By reading this blog, you agreed that i am not responsible for your trading.

The double top feeling

noreply@blogger.com (decipher) — Sun, 11 Oct 2009 14:56:00 +0000

What do you see in a market when they rally on lighter volume? Especially if they retest the previous high on lesser volume? With major dow components reporting results, this could be a turbulent week. According to the news, market is looking for better revenue and not just better profit margins from reducing expenses. It will be very obvious if i see a candlestick reversal pattern right at this level. It will mimic summer'08. Financial shares seem to be weak and no sign of life as yet. Properties still lacklustre.. they exhibits the rebound with lower volume mostly. With these two sectors resting.. it's no wonder we are still shy of 2700.

If you look at STI's chart, each day we gap up only to close weaker. Is this persistent selling? If we don't stay afloat 20MA, this may be where market test 2520. Otherwise, i will take the next higher low as another cue to add more long positions in this bull market. My CDL finally broke higher. I set my sight at 1.80 and applying a trailing stop incase my double top premonition happens. I am still on a lookout for my second trade. Business travel is taking alot of my time this month and hopefully when the signal comes, i am at a location with wi-fi.

GrowMoney Quickpicks
ChinaEratat
LionAPac

I found the above stocks with good trending traits. But fundamentally, i don't see what could be the catalyst for it to go higher. I read a trading magazine lately and it said 50% depends on market direction, 30% on sector/industry and 20% is picking the stock. Thus, the two stocks above... actually i don't see any reason for them to head higher other than from charts. Though at times, charts are painted by CKs. Thus i prefer to trade stocks with fundamentals which gives me a safety net.

DISCLAIMER: The contents in this website are for fun reading and must not be taken as a buy or sell advice. You must do your own analysis on top of my postings. By reading this blog, you agreed that i am not responsible for your trading.

Finally it happens; 50-MA next

noreply@blogger.com (decipher) — Sun, 04 Oct 2009 07:48:00 +0000

Alot of people has been asking where am i... why wasn't the blog updated. I think September summed it up very nicely, boring month! Over the last 2 weeks, did the market really moved? I think not... most of the stocks are like what my friend aptly described, vampire kind of movement.. jumping at the same spot. Thus i adopted a wait and see attitude, quietly observing what the market is trying to do. In between, i found time to travel on business trips and doing some family stuffs. If i have no trading ideas, what is there to share right? Surely we don't want this blog to turn into a travel blog? haha

Like i said in my last update, unless i see my CDL makes money, otherwise i shan't add on. It doesn't make sense to put good money after bad when the obvious was i didn't get the direction right. Though i must admit, certain stocks look to be luring me to put on a second trade. But i was wary of the after-effects of the bearish divergences which was so obvious in alot of charts. Alas, with last week's mayhem in the market, looks like it is the correct choice afterall. Though i didn't make money with that, it gives me confidence. The confidence that i know this game afterall. I found myself feeling more frustrating without a correct market opinion than losing money. This game has taught me that, every loss is a lesson learn and an insurance against bigger loss. However, once my opinion with the market is in-sync, that is where i know the money will start flowing in again. Looking back, although i grumbled about losing back this year's profits to the market, there is something to note here, while i took 2 months to build it up, i lose it over 7 long months. This reminds me of the an advise i read from a book, it goes like this... "In trading the financial markets, it is important to find a strategy that allows you to still make money despite being wrong 70% of the time." It makes sense doesn't it? How easy is it to win all the time? Or even 50% of the time? I hearsay, if you can win 50% of the time, wall street will queue up waiting to hire you. So if it's easier to lose than win in trading, then shouldn't we come out with a method to still make money while being wrong most of the time?

I am now ready to look forward to the next trade. Volatility is expected to pick up in October and i am tempted to adopt the strategy of selling into the rally since i see no reasons to be long in October where everyone is warning of a brutal month and surely this may affect buying sentiments? How about corporate earnings? Some of the good numbers maybe proped up by cutting down headcounts? I remember sales revenue ain't that good in the last report? It's just that, things are not that bad. With a good mix of good and bad econs numbers over last week, is this a hint that the quaterly results will surprise to the downside? I cannot place my bets based on speculating the results... thus i have to rely on charts. As they were just beginning to break support, i am observing if they are gonna stay firmly below it as i do not want to be whipsawed.

I set my sights at 50-day MA for now... it may act as a support. Index are still showing higher lows thus, i won't short for now and rather, i am looking to long. That's why i am still keeping my CDLHTrust - my only long trade. The next thing i am waiting for would be the 4r1g signal. That is my first sign that market is attempting to turn upwards again.

Now if the above didn't materialise, then we would have formed the early stages of a downtrend with the classic lower high and lower low. Usually the component stocks would lead the way in the fall. Thus watch their support levels for clues.

DISCLAIMER: The contents in this website are for fun reading and must not be taken as a buy or sell advice. You must do your own analysis on top of my postings. By reading this blog, you agreed that i am not responsible for your trading.

STI tries to scale 2700 once again

noreply@blogger.com (decipher) — Tue, 22 Sep 2009 14:29:00 +0000

In the previous 3 attempts, STI failed at 2700. In what looks like a Ascending Triangle, amazingly we are gonna try it for the 4th time. Will it be 4th time lucky? Indeed market has been rather sluggish these days. I rather wait at the lower range then to get caught at the high again. The last sell-off saw me scurrying for cover. This time round, i picked a short long and covered my HSI short position at a loss. I thought i would be killed after 21k broke out, looks like heavens gave me a chance to run and i gladly did so.

Of the list i posted last week, the stock i went long is CDLHtrust. Looks like my luck is changing as it is still near the entry price and slightly into profit. But i ain't gonna count my chicken before it is hatched. I wouldn't even consider getting into a second stock at this level. Market is sideway and i thought it only make sense to buy low in a trend, and if there is no trend, avoid buying at resistance is the least i can do. To me, i still have that thought about a sudden plunge in the market. But market as usual will not listen to me and so if it is still climbing, i shall cautiously thread along.

I am currently keen to observe how those 20-day mas are holding. It is flattening and we are hanging precariously by it in many of the stocks. Of course not all stocks will fall. Selective plays are still doing very well. But i just don't feel confident to go into one as yet. I look at the list of screening results i gotten from XPertTrader... C2O, CH-offshore, Cosmosteel, Des studio, Metro, Mermaid, Falcon...etc.. isn't it a textbook warning of a interim top whenever market is lead by such stocks?

Tonight i received quite a number of signals from property stocks. The last round they lead the first assault on 2700 but failed miserably. Nan dao, tomorrow they gonna try again?

Like i said earlier, i am sticking to just one stock at this level. I do not see those obvious signs of a trend, and i do not see rotational interest. Without those two, odds are against me.

I study with interest the chart on SPH tonight, all signs point to a higher price in coming days. This stock though slow has been very consistently heading higher. I shall continue to observe if it breaks the old high. Especially those stocks which are showing a change in trend, if they turn up successfully, then perhaps my CDL will break higher.

DISCLAIMER: The contents in this website are for fun reading and must not be taken as a buy or sell advice. You must do your own analysis on top of my postings. By reading this blog, you agreed that i am not responsible for your trading.

Beware - Do not own the stocks i am eyeing

noreply@blogger.com (decipher) — Wed, 16 Sep 2009 13:54:00 +0000

Tonight I present something that has been missing from this blog for a long time - GrowMoney QuickPicks. Please pay special attention to these stocks because these are the stocks i am eyeing. At this stage, you do not want to hold the same stocks that i am in because i am not at the best of my luck. Thus good luck to you if your stocks is one of the following.... haha

GrowMoney QuickPicks
Ausgrp
BakerTech
CDLHTrust
F&N
China Sky
Epure
JiuTian
LiHeng

Other than F&N, the rest are pennies. I think the play is still in the pennies. The fact that the bluies are not running is still a warning to me. My strategy is to long just one of them.... this first win is what i need to know that i am on the right track. China pennies are particularly cute because of their National holiday is coming and also upon seeing HSI breaking key resistance. Having said that, isn't it wierd? With FTSE and HSI breaking into new highs... Nikkei and Dow still ai mai ai mai....

Bluechips really is lacklustre as we are heading near Mt. 2700... nan dao a big pop up is coming? I was trapped in the shooting star last week when 2700 was pierced. I went on a buying spree in an opinion we go to at least 2750... alas it was not to be and i have to run my longs and suffered a blue-black eye. If we pop up again, i will STILL try! Yeah, the rule of the game is, when i lose, i lose small, when i win i must win big which will cover most of the losses if not all. Thus i cannot miss the next big run either up or down otherwise it tilts my equation. I do not need to sit by the sidelines as i feel i am still healthy to trade. I am still thinking objectively and do not hold on to hopes or losses. I know i need to stand aside if i begin to feel revengeful, despair, hopeless, clueless.

I am still short on HSI and no new positions. I will cut my HSI if we do not see a sharp sell-off over the next few days. Bear divergence leh... nan dao i am so suay until bear divergence also work against me? Did i mention Dow also has one? The CPI surprises on the upside... if it was the old days, the market would have sold off... because it means interest rate hike may be coming... right now Obama keeps saying they won't pull out from the bailout too fast too soon... they say recovery may be weak.... now we are very fragile... so a hike is pretty remote.. or is the market running higher so that it has room to fall because a hike is coming? Are they going to risk inflation?

DISCLAIMER: The contents in this website are for fun reading and must not be taken as a buy or sell advice. You must do your own analysis on top of my postings. By reading this blog, you agreed that i am not responsible for your trading.