Experimenting some TA

[blu3]

Hi everyone,

Finally! I am done with reading “A New Trading For a Living” by Alexander Elder! I now feel more knowledgeable and confused than ever but what is sure is that I'm ready to make some serious losses! I mean, gains—hopefully.

I'm thinking of using this thread to list some trades that I've made, as well as others that got me thinking but didn't lead to taking any action (yet).

Note that I am not into short-term trading but, to start with, I would be more interested to use TA as a way to pick better entries/exits for longer-term holding of stocks which are strong on the FA side. In other words, I would like to follow an approach similar to what KW described in her thread “Using TA to time entries and exits”.

I will be grateful for every—constructive—feedback and hope that the resulting discussion will help not only me but everyone interested in having a better approach. Please feel free to also post your own trades!

Here I come!


Disclaimer: do not reproduce my trades if you don't want to lose your money.

[blu3]

Buy: GEM (ASX)


Disclaimer: I still know pretty much nothing about FA but decided anyways to try out some TA almost on its own, with a very small risk per trade (I call it the “much less than 1% rule”), to see what happens. Yes, I didn't have to make an actual trade to try it out, but it wouldn't be as authentic.




One of the thing that I remember the most from that book is the bullish divergence. That's what I thought seeing here and, if my interpretation of the chart is correct, it could very well even be a triple bullish divergence! There are 3 lower low prices with their corresponding higher low MACD-Hs, as well the MACD-H breaking through the centerline between the bottoms. Such divergence is considered as a strong indicator that this might be the end of a downtrend with a major reversal on its way.

This is confirmed here with the MACD lines, MACD-H, and EMA 25 all pointing up on the weekly chart, as well as a record high MACD-H for the past 3 months. I'm not too sure about what to think about the volumes though?

I've had difficulties to pinpoint support/resistance levels but ended up with a resistance one that seems fairly solid (according to its duration and volume) at $3.6, another one at $3.8, and finally at $4.2. As such, and in the hope that this is indeed the begin of a major trend, I set my target price to $4.2. I consider the support to be at around $3, and so I set my stop loss price a bit randomly at $3.06. Well, since Direct Broking doesn't allow to set a stop loss on the ASX, I will have to do this manually. Not sure if this stop is far enough for picking up major trends?

I decided to use today's decline as an exercise to pick the best entry point that I could, using an intraday 15-min chart. Hoping that the EMA 200 would serve as a support level, I ended up getting in at $3.34 only to end up following, powerless, the price reaching the low of the day at $3.31 before bouncing back a bit. Not so encouraging for my TA non-skills but not a big deal neither.


In short, here are the numbers:
- entry price: $3.34
- target price: $4.20 (+25.75%)
- stop price: $3.06 (-8.38%)
- close of the day: $3.33 (-0.3%)


Wish me good luck!

[Jay]

Good on you b3.
Question though: If you think support is at $3.00 why put your initial stop above that?
I would have put it initially at $2.98/$2.99 and adjusted the number buying if you want to keep the risk amount/% about the same

Volume looks to be above average for the last few months so a tick there IMHO

DISC: As far as I know, I know nothing F/A wise about the company and not much TA wise either only going on the above!

[Longhaul]

Good luck blu3! Will watch with interest. I'm also getting into swing trading at the moment. Mostly just trying to ride the undulations of stocks in uptrends as they push higher.

In GEM's case, personally I don't have enough experience to try and pick bottoms, but looks like a good test of pure TA. Hope it works out!

[blu3]

If you think support is at $3.00 why put your initial stop above that?

Yes, you are right, this wasn't a very rational decision. I thought that if this bullish pattern had any predictable effect, then I really wouldn't want to see the price going down all the way back to below the recent price gains, so I tightened it a bit. If I were to set the stop below the support level, I would probably have put it around $2.93 to—hopefully—avoid a minor false breakout. But then the risk/reward ratio didn't look as interesting for such a bullish pattern! I said that it was irrational, right? Worst case, if I end up selling, I guess that I can still get back in later if I see that it's bouncing back. Even though it's probably going to be a harder call TA-wise?

On the FA front, it's not looking too bad according to KW's bullet points from the thread linked above:
- growing EPS over the last 3 years: 0.09, 0.11, 0.16. CHECK.
- growing dividends over the last 3 years: 0.1, 0.17, 0.27. CHECK.
- ROC greater than 10: 12.51. CHECK.
- ROE greater than 10: 12.45. CHECK.
- P/E lesser than 15: 25.74. FAIL—but not a hard rule.

It would be helpful though if I'd knew how to value the company on a FA basis but I'm not there yet.


Cheers Longhaul, best luck to you, and don't hesitate to post your trades somewhere if you weel like sharing!



Looks like the price is still heading South today, which is a bit scary. I understand that there are some pullbacks during any trend, and hopefully that is only that. On another note, I guess that making profit can't be as easy as spotting a pattern non a chart! Maybe there is something to do with the bigger picture, like the overall Australian market looking gloomy. This could mean that the global picture overrides super-bullish patterns seen on stocks?

[blu3]

The biggest lesson that I've learned from Elder's book is that charts reflect M. Market's psychology. Yup, I didn't even know that. And yes, it's definitely not easy to sort out the rest when you're not a short-term trader though. Just the numbers he's using for his MA are way too sensitive, as is his approach to using other tools.

But I definitely took note of the multiple timeframe approach and noticed the current (previous?) long-term downtrend in GEM. I am definitely after buying in uptrends but I see this trade as a sort of exception where I wanted to check if this kind of bullish divergence pattern was indeed strong enough to pick a bottom. He didn't even bothered talking about volume when going through this pattern, so I thought that maybe it'd be fine! We'll see how it goes but thanks to you I am now even more doubtful towards the chances of success for this trade

So far, it sounds like some fight is happening around the $3.3 mark, but I'm not sure if I should call this a resistance or a support level The price going up towards the end of the daily sessions might be a positive sign that the “pros” are buying, as described in the book, but it's true that in comparison with good volume, this probably doesn't mean much.

I've had a look at EML's chart and, despite me wanting to start buying in uptrends, the truth is that it's hard to not think “this might be the top” when such a rally is going on. Not sure how to convince myself to discard this instinctive thought yet.

As a side note, I think that BBG has been doing even better on the sucker front. It went from its mid-2007 high of $18.5 down all the way to $0.15 in mid-2013—that's -99% in 5 years! Definitely worth the “fallen angel” label as described in Elder's book, especially since the recent turnaround strategy seems to be starting to pay off—the price is slowly rising, it recently hit $0.75, making it for a +400% increase since its lowest peak and +35% during the last 3 months. Might be worth watching for the ones prone to taking risks. Shameful disclaimer: been holding a small parcel since February 2013 then averaged down in May 2014 for a total average price of $0.65. Needless to say that I've never been very good with timings—and that one should *not* buy in a downtrend!


Thanks for the new book recommendations!

[blu3]

We all suffer from this. Its actually really hard to get your head round. I hate Hotcopper hot stocks, because the run away share price puts me in a psychological position of not wanting to buy in. Consequently, I miss some of the biggest movers on the market. I have to get over it as well! I think the thing to remember, is that its better to be running with the bulls than to be fighting with the bears. So see new highs and fast movers as an opportunity to join the herd, rather than it being a trap. That's what I'm going to tell myself anyway (backed up by strict stop losses of course to protect your ass if it turns out to be a pump and dump)

Are you willing to test your determination? I've found a good stock chart-wise for you: DMP (ASX)! It even fits your FA checkboxes (I believe), at the exception of the P/E.

[blu3]

Watching: TNE (ASX)




I've been looking for some new stock ideas and found this nice looking chart. If buying in an uptrend is the rule then this stock scores a 5-year long one! Unfortunately the pullback areas seems to have grown stronger over the years and it have entered a more turbulent one since April 2015 with the price reaching way below the EMA 50, and now heading towards it once more.

I've read on HC that one possible reason for the current pullback could be due to the stock being overpriced. Or maybe is it a negative sentiment in apprehension of the FY 2015 to be released on Janurary 2016? Note that they've released a HY 2015 report back in June that is weaker than the previous HY but this is due to, I quote: “a number of significant deals close earlier than normal which saw 2014 first half Licence fees up 24%”. But they're confident that the FY 2015, expected to be reported in January 2016, will be strong. Unfortunately I've got no idea how to do a FA valuation myself, and am not able yet to read between the lines and understand what's going on behind each business.


Highlights:
- 5-year long uptrend (+275%)
- no overhead resistance in the previous 12 months (if the SP bounces back from its current pullback)
- director bought $188k worth of shares at $3.87 each (1 June 2015)
- NPAT: $31M (FY 2014), $27M (FY 2013), $23.5M (FY 2012)
- EPS: 10.06 (FY 2014), 8.78 (FY 2013), 7.73 (FY 2012)
- dividends: 6.16 (FY 2014), 5.6 (FY 2013), 5.09 (FY 2012)
- ROE: 30 (FY 2014), 31 (FY 2013), 32 (FY 2012)
- cash: $80.2M (FY 2014), $65.4M (FY 2013), $51.1M (FY2012)
- total liabilities: $46.8M (FY 2014), $49.9 (FY 2013)
- debt/equity ratio: 4%


With all these highlights seeming positive to a neophyte like me, and this nice looking chart, I'm now wondering if I should get in if the uptrend resumes or if I should stay aside while expecting a correction. Hard to tell without knowing the FA valuation, but if a director invested $188k at $3.87, it can't be a bad sign, right?

[winner69]

Blu - your GEM going OK

[blu3]

I see your DMP and raise you BKL :-)

Re TNE - its going into a consolidation period after a long run up. No way to know how long for, but you are better off looking for something that is in the beginning or middle of an uptrend than one that is at the end of it. Your weekly and daily charts need to agree with each other - and the TNE daily chart is not great. You want something that looks like PRO on both daily and weekly. The major benefit of TA is that it sorts through the crap - so dont settle for any old trade, wait for one that is perfect and then go for it.

Attachment 7720Attachment 7721

That BKL is surely showing a nice curve! It actually looks like they've been trying to draw an exponential function for the past 2 years. But I'll let you go ahead with that one, I'm definitely not ready for this just yet

And yes, that's why I didn't buy TNE but added it to my watchlist instead, in case the uptrend resumes. Let's see how it goes!

Believe me or not but I also picked PRO amongst the screening that I've made a couple of days ago and I was thinking of writing a post about it but you've just spoiled everything! Just kidding, thanks for sharing! It's great to see that it's in your list, this must be a good sign!

Is it me or the time scale on your daily chart isn't linear around February-April 2015? Is it a common feature amongst advanced charting tools? I really like the look of your charts btw! Is it from a paying service? I'm currently stuck with a mix of BigCharts (not so interactive and not so accurate MAs) and Yahoo Finance (not so complete) as I didn't manage to find a good, free, charting tool for the NZX/ASX that works on Mac OSX. Whenever it's free, there always seems to be some sort of limitations with the current charting softwares. On the bright side, it means that there's plenty of space for starting a cool multi-platform open-source development project!

Blu - your GEM going OK

Let's not draw conclusions after a single positive day on average volume—it's only 2.1% up in my book and is at 8% from my target price, that's a long way to go!