Using TA to time entries and exits

[Joshuatree]

I look at this excellent basic charting advice every now and then and repost it to share and refresh myself.There are more invaluable posts from KW to read too a little further in.

I thought I might start a little discussion on the usefulness of TA for timing. Now I do NOT advocate trading based on TA alone (tried it, lost a lot of money) but if you have used FA to identify a select list of good prospects, TA can be quite useful at knowing when to buy, when to top up, and when to sell. The following are all examples of some of my recent share purchases and sales.

1. When to BUY
I only ever buy companies that are in an uptrend. (Tried buying downtrends, lost a lot of money). The trick is to know when to enter. Get in too early, and the uptrend may turn out to be a dead cat bounce, or fizzle out. Get in too late and you may miss most of the run. My favourite entry point is when the 50 day moving average crosses above the 200 day moving average and the share price is above the 50 day MA. While you miss the early run, the risk of the uptrend not continuing is somewhat abated. I have tried entries based on just the share price crossing above both MA, but 3 out of 4 picks fail to continue on. I confirm the trend by watching the MACD (needs to be in positive territory).

Example: CGF - entry was in early March, when the share price moved back above the 50 day MA and the MACD turned up ($3.64 - $3.81)
Attachment 4517


2. When to TOP UP
Companies that are on exponential uptrends often present difficulties in deciding when to jump in. I have found that many pull back to a moving average, providing excellent entry points while the stock pauses and gets ready for the next leg up. Again, I use the 50 day average and MACD to confirm the uptrend is continuing, rather than the price decline being the start of the new downtrend.

MFG - has been in a strong uptrend for ages, but it took a breather and retreated to just below its 50 day MA. Entry point would have been end of April when the MACD went positive, and the stock price crossed back above the 50 day MA ($6.94 - $7.14)

Attachment 4518

Another great example is SIV - entry point is end of February ($5.90 - $6.28)
Attachment 4519

3. When to SELL
The first warning is when the share price drops below the 50 day moving average and the MACD turns down. This should put the stock on a watch list - its either a good time to top up, or a sell signal is going to be coming up shortly. If the price drops below the 200 day moving average I usually sell (I say usually, because its not uncommon for traders to try to drive the price down that far in order to trigger a bunch of stop losses, so you need to watch out for this little trick as often the share price rebounds immediately. IIN and CSV are good examples of this manipulation). If the "death cross" occurs (where the 50 day moving average crosses below the 200 day moving average, this is a signal that the downtrend is now firmly established).

ALQ - I bought into this thinking it had turned the corner and was heading back into a strong uptrend. Alas it was not to be, and in mid-March an exit was signalled ($10.50 - $10.80). Even though the price has rebounded recently, its still a death cross situation, and its more likely than not that the downtrend will continue for a while.
Attachment 4520

I hope others find this useful - its how I make decisions at the moment, its very simple, but pretty effective. Its part of my "get rich slow" investment strategy :-) If anyone else has any examples of when they enter or exit, then please post them.

[Joshuatree]

Heres another pearler.Unfort most of KW's posts have been deleted when she left..

If you had bought $10,000 worth of FET shares 10 years ago you would have had 6,993 shares (@$1.43) which would be worth $14,545 today (@$2.08). Some might say thats not a bad return - 45% over 10 years. But over that time period you would have had to watch your investment drop to $0.14 - your $10,000 would have been worth $979 at the bottom of the bear market! How well would you have been sleeping then? You would not have gotten back to even until March 2013 - thats 7.5 years before you start to make a profit on your original investment.

However, if you had utilised the most basic of TA exit signals (in this case the 50 and 200 week moving average) you would have sold your shares in December 2007 (breach of the 200 MA) for $1.60 netting you $11,188. You then would have sat out the market drop until September 09, when using your $11k you would have bought back in at $0.38 (price above the 50 MA). This would have given you 29,444 shares which would be worth $61,243 today. Or a 610% return on your money.

45% or 610%? Your choice. Don't get trapped in a bear market. And if you have sold out, don't forget to buy back in once the share price recovers. You don't need to pick absolute tops or bottoms - you just need to be on the right side of the trend.

FYI - FET is an AREIT, a stable dividend paying stock.

[Joshuatree]

A classic example.If one had the discipline to use this for AIR it would have saved one from catching falling knives and being influenced by wannabe Gurus believing the myth they create

[Xerof]

Gee, Hoop, I see AIR couldn't even retest the neckline.......gulp

[Baa_Baa]

A classic example.If one had the discipline to use this for AIR it would have saved one from catching falling knives and being influenced by wannabe Gurus believing the myth they create

Possibly, but AIR is so volatile the death cross/golden cross happen after really large SP moves have already happened. I think the 50/200 crossovers suit less volatile shares. Need a faster trigger for AIR imho.

[Hoop]

I look at this excellent basic charting advice every now and then and repost it to share and refresh myself.There are more invaluable posts from KW to read too a little further in.

Yes KW leaving was a big loss for ST..However her thread lives on..lets hope we can keep the thread's quality up to her high standards..

[Hoop]

Gee, Hoop, I see AIR couldn't even retest the neckline.......gulp

Whew.. I dodged a bullet here..I thought with the large number of passionate AIR investors all reciting great earnings, rosy forecast earnings, very low PE Ratio, etc a strong pull back to at least the neckline was on the cards...It was tempting to have a short term dabble to earn my weekly allowance..

[Hoop]

Hi all, I've been following this thread and was wondering if I could get some friendly advice on a potential head-and-shoulders pattern on the SUM chart.

I would like to confirm that if the chart completes something like my dotted lines that this would be considered a head-and-shoulders pattern, and that my target price area would be correct.

I've tried to annotate it the same way as Hoop did above as I find his charts nice and easy to follow.

Thanks in advance.

Attachment 8016

Ideally the right shoulder should be similar in time duration, but truth is I'm thinking you are getting a bit ahead of yourself (in terms of anticipating the pattern).

Perhaps at this point one could merely say that $4.40 is playing out as an important zone, and a convincing break in either direction will confirm the trend.

Totally agree with Peat

A head & shoulder pattern is not a pattern until the neck is broken...Being aware of a pattern forming is good practice however one should not just focus on one pattern forming as often there are other patterns forming too, some may not be so obvious..
An important rule is not to pre-empt a forming pattern outcome, often one is tempted by the continual bombardment of day to day negative/positive media noise...
An example of this is my long term chart below...look at the many partly H&S formed patterns which nearly all failed to complete..pre-empting SUM would have been a total failure...
Actually as the H&S pattern is very common it is interesting to see SUM with only one (maybe 2 with a stretch of imagination) within a 4.5 year period.

H&S patterns are the most reliable of patterns so it is very common to see a mass sell triggers all firing off at once as seen on the chart below.

The H&S pattern on the chart below is called a complex top Head & shoulder pattern

The other "possible" H&S pattern I mentioned is a down slanted bottom H&S pattern a rather misshaped animal but the neckline break did spark a mass of buy signals.
As many H&S patterns aren't the textbook shaped models they can go unnoticed..

As a Chartist I focus a lot of my intention on patterns..when a chart has few medium term patterns I have to resort to other methods, standard Deviation channels is one of those methods.
The chart below shows secondary SD channels within a longer term SD channel...These secondary channels were drawn in some time ago so when they break down a new SD channel is drawn..If they were drawn today they would look different.

SUM is a beautiful specimen for investors..It is having a great run..Its been a bull market cycle since IPO with only one large bull market correction (and a couple of small ones) ...an overall of +300% increase

Interesting TA example on the Chart...A bearish H&S pattern with mass sell signals is a must sell scenario for a disciplined Chartist..Many would ask why this happened to a fundamentally sound growth orientated company A disciplined chartist won't ask, the chart has decided for him/her....sell!...As the H&S failure rate is 4%, it is remote to assume that the investor fright is a flash scenario no matter how positive the media is As a TAist I always remind myself of the possible scenario that as a individual investor I will be the last to hear the latest news..so if Mr Market tanks then there's probably a good reason..
When TA says sell out of a company that seems to be doing well ..you do and immediately put it on your watchlist and wait for buy signals...In SUM example if you sold 50,000 shares that same money would have bought you 57,000 shares at the next buy signals...added return at a much lowered risk

EDIT: The EMA100 was added in preference to EMA50...The EMA50 seems to be too sensitive for SUM and fires a lot of false signals...Look at how well the EMA100 and MA200 perform.

[Hoop]

Well we can say that Mr Market isn't acting irrational with AIR..
.The latest depth is showing a number of small buyers at 2.40..so there seems to be some sort of support evolving around 2.40 as predicted from our charts...if 2.40 support fails then all eyes will be on the 2.35 depth area...2.38 something brewing up here??

[Horse]

Totally agree with Peat

A head & shoulder pattern is not a pattern until the neck is broken...Being aware of a pattern forming is good practice however one should not just focus on one pattern forming as often there are other patterns forming too, some may not be so obvious..
An important rule is not to pre-empt a forming pattern outcome, often one is tempted by the continual bombardment of day to day negative/positive media noise...
An example of this is my long term chart below...look at the many partly H&S formed patterns which nearly all failed to complete..pre-empting SUM would have been a total failure...
Actually as the H&S pattern is very common it is interesting to see SUM with only one (maybe 2 with a stretch of imagination) within a 4.5 year period.

H&S patterns are the most reliable of patterns so it is very common to see a mass sell triggers all firing off at once as seen on the chart below.

The H&S pattern on the chart below is called a complex top Head & shoulder pattern

The other "possible" H&S pattern I mentioned is a down slanted bottom H&S pattern a rather misshaped animal but the neckline break did spark a mass of buy signals.
As many H&S patterns aren't the textbook shaped models they can go unnoticed..

As a Chartist I focus a lot of my intention on patterns..when a chart has few medium term patterns I have to resort to other methods, standard Deviation channels is one of those methods.
The chart below shows secondary SD channels within a longer term SD channel...These secondary channels were drawn in some time ago so when they break down a new SD channel is drawn..If they were drawn today they would look different.

SUM is a beautiful specimen for investors..It is having a great run..Its been a bull market cycle since IPO with only one large bull market correction (and a couple of small ones) ...an overall of +300% increase

Interesting TA example on the Chart...A bearish H&S pattern with mass sell signals is a must sell scenario for a disciplined Chartist..Many would ask why this happened to a fundamentally sound growth orientated company A disciplined chartist won't ask, the chart has decided for him/her....sell!...As the H&S failure rate is 4%, it is remote to assume that the investor fright is a flash scenario no matter how positive the media is As a TAist I always remind myself of the possible scenario that as a individual investor I will be the last to hear the latest news..so if Mr Market tanks then there's probably a good reason..
When TA says sell out of a company that seems to be doing well ..you do and immediately put it on your watchlist and wait for buy signals...In SUM example if you sold 50,000 shares that same money would have bought you 57,000 shares at the next buy signals...added return at a much lowered risk

EDIT: The EMA100 was added in preference to EMA50...The EMA50 seems to be too sensitive for SUM and fires a lot of false signals...Look at how well the EMA100 and MA200 perform.

Cheers for the detailed response, Hoop. Lots for me to go away and think about.