Trading Is Just Like Anything In Life – Follow The Rules And It Will Work

Rules are around us every day. From the type of food we eat to the way we drive to what we wear to work – and some of those rules are pretty silly. Or so we think. But, bear in mind that behind every rule is a reason and just because we might not be able to see what that reason is, it doesn’t mean that the rule is pointless. When it comes to trading, the rules are essential. Follow the rules of trading and you’ll discover that it really can change your life.

Understanding Your Strategy

The first rule of trading is to understand what your strategy is. Many people just go into trading without putting a strategy in place at all, and that can only spell disaster, even if ‘beginner’s luck’ is there at the start. Trading without a strategy has a name – it’s called gambling. But for those who really want to make something of and out of their trades, it’s time to follow the rules of trading, and that means not only putting a strategy in place, but understanding it, and following it to the letter. Getting this important part of trading right takes time and effort, but once it is done it will be worth every second you put into it.

Take Your Money Seriously

By all means, follow the rules of trading and we hope you have great success. But if you can’t afford to make a trade (that is, you can’t afford to lose the money, because there is always a chance that any trade can be a losing one) then don’t. Just don’t. Having money to pay the mortgage, make the rent, buy food… that’s important. And if by losing the trade you wouldn’t have the funds to make your important monthly obligations then it is time to step away. Be honest with yourself and if you are in debt and/or seriously cannot afford to lose any money, don’t take the risk.

Listen To Yourself

Gut instinct has a lot to say for itself. There is so much about the mind, body and whatever the soul might actually be that we can’t ever discount anything really. And gut instinct – that feeling you get about a situation, whether it’s good or bad – should never be discounted in trading. Follow the rules of trading and listen to your own head and heart. Follow your own strategy that you know to be right. And please, please, don’t listen to pundits or tipsters who are convinced they know more than you do. Do they? Do they really? Think about it. They have no idea what your strategy is or why it works for you, so they can’t possibly know what trade is the best one for you to get into. The tips these people offer are just their opinion. Well, you have your own opinion. Sometimes it will match theirs, and sometimes it won’t. But go with what you want, not what someone else is telling you.

Don’t Look Back

If you are keen to follow the rules of trading, don’t look back. Really. Don’t keep thinking about past errors or losses as this will reduce your confidence on your ability to understand your strategy and trade with it. Equally, don’t look back on your past wins either – this could make you over-confidence and liable to take risks that you wouldn’t have done otherwise, just because you were sure you couldn’t lose. Trading is a balancing act, and there is a fine line between going too far either way. The key is not to let your emotions get in the way of a trade. Professionals don’t. They don’t get angry, sad, ecstatic over trades. They just keep plugging on.

Lose

That’s right. To follow the rules of trading you need to lose. Not all the time, of course, but it’s going to happen. It’s an inevitable part of trading. You simply cannot avoid it. But you can – somewhat – manage it. That means that you won’t lose as much money as you might otherwise have done. Great!

Don’t Forget To Be Excited!

We know we said earlier about keeping your emotions in check, and we’re not saying that you need to jump up and down with excitement, but what we do want is for you to enjoy what you’re doing. Follow the rules of trading and don’t make it all about the money – be the best trader you can be, and the money will follow.

Rob Colville

The Lazy Trader

 

 

 

 

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Watch 6770 on the FT100

Global financial markets are a little calmer. Solid jobs growth numbers in the US, expectations of another large fiscal stimulus package in Japan, and the sudden emergence of Theresa May as the new UK Prime Minister, all helped support investor sentiment and drive up stock markets last week.

There are, of course, endless worries facing investors – from the risk of a President Trump to a hard landing for the Chinese economy. Eventually, the ongoing rally in both risk and safe asset classes must come to an end. Sooner or later either the stock market or the bond market will win.

The US in no hurry to raise rates this summer. The Bank of England is likely to cut rates in August. The Bank of Japan and the ECB are both aggressively employing new ways of injecting cash into their respective economies. All of the former indicates that central bankers look likely to be underwriting stock markets for the immediate future.

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There are some technical headwinds.

Some 80 years ago Harold M Gartley wrote a text on stock market investments. It was, in my view, a ground breaking book and it has pride of place in the library of books that I have collected over the last 30 years in this line of work.

On page 222 of the book Gartley introduced his most famous pattern that’s now been called the Gartley 222. A bullish Gartley is formed when a market rises and then pulls back in a 3 wave pattern to either 62% or78% of the rise. In the pullback the waves AB and CD should be equal in price.

A bearish Gartley 222 is formed after a selloff and then a subsequent rally in a three wave pattern. At this stage load a weekly chart of the Ft100 over the last two years. The selloff between April 2015 and the low in the first week of February 2016 is the down move. The leg up from the February low to the high on the 17th April is the first wave of the three wave correction. This is known as wave AB. The market then falls to a low on the 12th June which is known as wave BC. Since the 12th June the Ft100 has pushed upwards and is currently concluding wave CD.

The Gartley pattern suggests that a selloff followed by the AB=CD pattern is bearish. In this case the AB=CD and a 78% retracement of the selloff make a price confluence at 6770. This is the level that I have been watching for several weeks. I have no doubt that this level will tempt many shorts into the market and the price action around this level will need to be watched carefully. At this moment I have 7 unleveraged long positions in the UK stock market and I will be happier when the market has shown this level a clean pair of heels.

The post Brexit UK services PMI report on Friday 22nd was exceptionally poor and this caused the pound to tank. The pound/dollar exchange rate, although exceptionally difficult to predict, looks bound for 1.25. In a perverse way on both sides of the pond, bad news is good for stock markets. Bad news makes an interest rate increase less likely. In the UK it would seem certain that at the next MPC meeting a rate reduction and a raft of QE will be tabled.

On VectorVest both the underlying trend and Primary wave are positive and the underlying trend is confirmed by price action. The Confirmed Call upwards has been in place since the last week of February and Brexit did not change its direction although it came close. Over the past week the Color Guard has been showing green in all columns. I note several stars within the green lights in the price column of the Color Guard. This shows that the price move has been confirmed by the RT Kicker market timing system. The latter just means that both price and the momentum of price (RT) are moving upwards together. It’s a good sign.

The VectorVest edge in markets fuses together the fundamental position of a share, with the technical position of both the share and the underlying market. In short we wish to purchase undervalued shares that are growing earnings both aggressively and safely, that are trending upwards when the general market is trending upwards.

VectorVest puts a number to value, earnings potential (RV) and earnings safety (RS) and simply and effortlessly completes fundamental analysis for all of the shares on the main market and AIM. The fundamentals are delivered in numbers rated between 0 and 2 and are simple to react to. Information is useless unless you can react to it.

The technical position of the overall market I have described above and on the front page of VectorVest the state of the underlying trend and the short term trend (Primary Wave) is summarized each and every day.

In the last few weeks in this forum I have defined a methodology to quantify the technical position of an individual share. It uses a weekly chart and two moving averages of lengths 20 and 40 weeks. If the 20 week is above the 40 week then the trend of the share is good. I favor getting onboard the share upon a pullback into the zone between the 20 and 40 average. The details of the technique are listed in the last two postings at www.vectorvest.co.uk/blog . The exact entry uses several weekly candle reversal patterns to pinpoint when to act. I have presented the strategy at User Groups in both the UK and SA and the technique has been well received.

All of the shares in my portfolio (save Gleeson) are in sync with the 20 week and 40 week averages and I have added several upon the pullback into the zone confirmed by a weekly candle pattern. Fevertree is trading above the VectorVest valuation and I have included the share based on its trend and excellent earnings potential number (RV) of 1.5.

I am holding Fevertree, Hill Smith, Gleeson, JD Sports, Cranswick, Keller and Trifast.

Last week I spoke about Dart. The share has pulled back into the zone between the 20 and 40 week averages but shows no sign of a reversal. I have noted that if a share closes for three weeks below the 20 week average with no sign of a reversal that the hit rate of the technique falls enormously. I have taken Dart off my watch list. I am watching Gleeson carefully as the 20/40 weekly technique is negative.

As stated above I will be happier when the 6770 level on the FT100 is exceeded.

David Paul

July 22nd 2016

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Holding on to winners…

One of the most difficult aspects of trading for many people is the ability to hold onto winning trades. The temptation to bank profits is always a battle and one that most traders struggle to overcome.

We are hardwired to want to be correct as often as possible. The problem with trying to hold onto profitable trades is that if they reverse and become losers, that goes against our hardwired need to be right. So the majority of traders end up banking profits way too early through fear of that profit disappearing.

It’s quite incredible but most traders know that if they held onto their winning trades for longer, they would actually make more money but won’t do it because it usually means having a lower percentage win rate. This comes back to that hardwired desire to be right more often than being wrong, even if it means making less money!

I was speaking to a trader just last week who had tested a strategy using a variety of different approaches with regards to when to bank profits. Even though one approach made far more pips, he said he didn’t want to use it because the win rate wasn’t high enough so he was going to opt for a strategy that was less profitable, but made him feel more ‘comfortable’ because it had more winners.

The opposite of this is a trader of ours who has really embraced risk versus reward. He doesn’t worry about win rate, he only cares about being the most profitable he can be. To give you an example; across a recent set of day trades over the week, he had 12 losing trades and 6 winning trades but banked just over 4% net over those trades. Now that is what more traders should aim to be like. Forget being right as much as possible, focus on being as profitable as possible, there’s a big difference between the two…

Moving over to the currencies, the USDCAD has been struggling with the 1.3150 zone for some time now as highlighted on the chart. If it closes above this area, we could see a breakout which sees it run to the 200 day moving average at 1.33 in the first instance…

simoncad

Have a great week

Charlie Burton

Ezeetrader

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The Famous Four

The high on the Ft100 fell short of my target published here last week by around 30 points. The Dow has soared past my level. On VectorVest the trends are UP and UP. The most conservative signal on VectorVest (the confirmed call) has been positive since the last week of February.

The bond market and the stock market continue to have markedly differing views on the future. Stocks are making new highs and bond yields new lows.

I will continue with my weekly chart template that I have been discussing here for the past two weeks. The model of the market simply uses a 20 week and 40 week simple average to define the trend and a pullback zone within the trend. This concept takes advantage of the fact that markets frequently pullback into the zone between the 20 week and the 40 week prior to the resumption of the trend.

After a pullback a candle reversal pattern confirms the trend re asserting itself. Another method of confirmation is a close above an 8 exponentially smoothed moving average. Please construct a template so as this can be quickly applied to any chart. The layout of JD Sports is shown below.david

Today I wish tie the technique together with VectorVests fundamental information and illustrate this fusion with four shares that I am watching keenly at the moment.

These are JD Sports, Cranswick, Dart and Hill Smith.

On each share load a weekly chart over 2 years and apply the averages. I also add the VectorVest calculated value of each share. This loads in the same window as the price. Note the price is below the value and that’s how it should be. We favor undervalued shares at VectorVest. In the case of Cranswick the difference between the price and value is much less than in the other three but still the price is below the value.

Below the price please add a window which shows earnings per share (EPS). I like to see this chart move smoothly upwards from the bottom left of the window to the top right. EPS growth is the engine that drives the share price and my observations indicate that the trading becomes easier and more profitable when the EPS shows little volatility. In all four shares that I have mentioned above the EPS growth is strong.

All the shares in question pulled back into the zone during and in the run up to the Brexit panic.

In another window please load a technical indicator called the “stochastic”. It’s a common study made famous by my sadly departed old friend George Lane. His course was my first exposure to technical analysis of the stock market. I attended the course in February of 1985. The stochastic is a “normalized indicator” with values running between 0 and 100. If the stochastic is below 20 then the market is defined as oversold, if above 80 overbought. On a weekly view this is a very useful measure. Please use the default settings of a 14 week lookback period on VectorVest.

The stochastic and indeed all momentum indicators have a leading characteristic named divergence. The most useful of these is called reverse divergence or hidden divergence or a slingshot. Here the price makes a “rising bottom” while the stochastic makes a falling bottom into the oversold area. The technique is called a slingshot because it invariably precedes a very strong resumption of the trend. Reverse divergence/hidden divergence/slingshot is a potent continuation pattern.

On our chart we now have summarized both the fundamental and technical positions of all four shares. Let’s now make some conclusions

All four shares are undervalued

All four shares are growing earnings strongly with few surprises

All four shares have pulled back into the zone and have found support in the zone. JD Sports and Hill Smith have charted a “hammer” candle pattern in the zone. Cranswick has charted a “Doji” in the zone and then two inside weeks. Dart has not confirmed by a common candle pattern as yet and has failed to close on a weekly basis above the 8ema. In terms of this model of the market there is no trade in Dart as yet.

Hill Smith and Cranswick and Cranswick have closed above the 8ema and that very positive.

In all four shares the stochastic is oversold and showing reverse divergence with price. This bodes well for a continuation of the trend.

I have no idea what’s going to happen next but the probabilities are good that these shares will move higher over the next few weeks with all save Dart giving buy signals at the end of this week. With Hill Smith we are probably a week late into the trade as the hammer charted two weeks ago was a text book reversal pattern.

In your trading plan decisions need to be taken on how many of the above criterion you include. Have you got an eye for the candle reversal pattern or do you prefer the objective close above the 8ema or both? Where will you place your stop? At the low of the reversal candle or will you use the VectorVest stop. How much will you risk of your total portfolio on each trade? How will you manage the trade? Where will you exit a winning trade?

The combination of fundamentals and Market Timing as defined by VectorVest and this simple, but robust, technical model, constructs a very potent edge in markets. The technique can be managed in an hours study at the weekend. I think that I can easily spend a day fully communicating the technique and its nuances.

David Paul

July 15th 2016

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Do you hate taking a loss?

I was chatting to a trader on Friday afternoon who was long the Euro dollar. At the time he called, his position was under water but it hadn’t yet hit his stop which was 100 pips below his entry price. He had been pretty sure that Euro was going to break higher but now it was heading down, he wanted my view.

Cleverly, he asked my view before admitting to being long because my view was the opposite, that it looked like it had further downside to it. Now this trader likes to trade big, trading at £500 to £1000 per pip is a regular occurrence for him but it’s too rich for the size of his account. He gets away with these big positions by having wide stops relative to the amount of profit he banks. However, there’s always going to be those occasions where it still stops out.

Here’s what was interesting from that call. He told me the level at which he would get stopped out but was now waiting for a rally to close out his position for a smaller loss because to quote him “I hate taking a loss.” Unfortunately the Euro didn’t rally on Friday and carried on selling down past his stop so he would be nursing a larger loss than he’s used to over the weekend.

There’s an important lesson to take from this. Learn to accept losses as part and parcel of what we do as traders. They shouldn’t be perceived as something bad or to be avoided at all costs. If we look at them that way, they become emotionally painful and can end up affecting our ability to trade correctly.

I’ve said it before but this problem is really about an inherent desire to be right. In trading, we simply have to accept that we can’t be right all the time. Once we accept that, we can trade without stress, frustration, regret, anger and a whole host of negative emotions. We start trading in a relaxed, focussed way that targets outcomes over a series of trade executions, not a single one.

And as for trading too big for the size account? This trader is experienced enough to know what he’s doing, but I generally don’t advise it for the reasons given above, it just makes trading stressful which it really needn’t be…

Moving over to the currencies, last week I discussed the USDJPY and its potential for a run to the 106 area. It has indeed had a good run and reacted from its 50 day moving average resistance zone on Friday. It settled in the upper 104’s but it looks like it has some downside follow through potential after posting a negative reaction bar. The potential for a push back towards 103.40 is now there although I would ultimately still be targeting a close back above 105 by the end of the month if the Japanese ease further on the 28th…

simonjpy-1

Charlie Burton

Ezeetrader

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Bo Yoder S&P Analysis

I have been writing about the latent bullish power lurking within the S&P 500, (NYSE:SPY) for some time now.  This has brought me a lot of questioning and even ridicule.  However the wave of selling brought in by the Brexit vote has revealed the true nature of the bullish resolve and now we are headed up to test the all-time highs. Our model has long indicated that there was one last bullish campaign needed before the bears can gain control of the market, and we are hopeful that this test higher will be what we have been patiently waiting for.

spy7-10-16

Danaher Corporation (NYSE: DHR) fought valiantly after forming a double top, but then succumbed to the surge of buying brought on by the Brexit reaction. This triggered stop losses as new highs were reached.

DHR 7-10-16

Coca Cola (NYSE:KO) has been chopping sideways in a channel for some time, but bullish power has been growing, and the odds are high that this stock will break out to the upside to retest the highs

KO 7-10-16

Bo Yoder

RBJ Financial Group

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Patience and trading

There are many different ways where ones patience can be tested when trading. A day trader needs to have the patience to be able to wait for a market to set up correctly before taking a trade. Often, a trader can’t help but jump into the markets early, thus losing out on the battle to remain patient.

Other trader’s patience will be put to the test once they are already in a trade and the market is taking a long time to start moving in the right direction. This is a really tough one, especially if it’s a swing trade. A trader may have done all the correct analysis, waiting for the right entry level to come along, executed the trade but then the market just starts chopping around.

Some traders may in fact decide to close the position at this point but if the analysis still stands, why should you do this? It’s simply a case of sitting it out and waiting for the eventual move to come. Of course this could take weeks and the argument that the money could be used for another trade elsewhere starts to seem valid. But how would the trader feel if they closed the position, only for it to then start running in the direction of their analysis? That could cause anger and frustration.

It’s better to stay with a position even if it is moving slowly, provided the original analysis stands. Patience therefore is imperative to all traders of all trading styles. If you lacked patience and started cutting trades as soon as they weren’t moving for you, you would end up missing out on a great many opportunities. Maybe traders should all learn to fish in order to teach us this vital skill set. Well perhaps I shouldn’t push it that far….

Moving over to the currencies, overnight we have heard that the Japanese Prime Minister Abe is set to order a new stimulus package tomorrow. If this is true and the package is well received, we could see Yen weakness on the back of it. A break above 103.50 would be the first confirmation of a turnaround in USD/JPY. If it can then build from there, the potential for a test of 106 starts to increase. Firstly, it needs to get that break of 103.50 to confirm a change from the current daily downtrend may well be underway…

simonjpy

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Charlie Burton

Ezeetrader.com

 

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Greed and the fear of missing out…

Without a doubt some traders will have made some pretty decent gains last week whilst others would have been scratching their heads asking why they didn’t take any action.

I was speaking to a trader at the end of the week who said he felt a real sense of pain in missing out on what he said could have been ‘The trade of a decade’. He had seen the events of last Friday and couldn’t get over the fact that he had ‘missed out’. If only he had shorted cable like he thought he should have!

This fear of missing out is really part of the dna of a greed based trader. Greed based traders enjoy embracing risk and if they miss out on opportunities, they look at how much money they could have potentially made and then become frustrated because they missed out.

The problem at this stage is that frustration at missing out on a good opportunity can lead to a type of revenge trading. The emotion of missing out on that opportunity eats away at them and so they are desperately looking for another big opportunity. The problem is, are they starting to push too hard to find that opportunity? Ultimately, they’re at risk of over trading in the struggle to make up for the missed trade.

The way to suppress this emotion is to accept that you can’t possibly catch every big winner and that the market will always present other opportunities for you in the future. If you genuinely did have some intention to take that big trade you missed out on, congratulate yourself for having the correct analysis. Carry on with analysis like that and without a doubt, other opportunities will come your way…

Moving over to the currencies, the AUD/USD pair looks interesting on the weekly chart right now. Despite speculation that commodity currencies are going to struggle, the Ozzie is holding up rather well over this past week. It has the potential to make a run for that upper trend channel line on my chart so if more strength comes in, look for a run to that trend line….

simonaud-1

Charlie Burton

Ezeetrader

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Have a great week

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An effective and profitable weekly trading plan

For many the time required to study charts each and every day for entry and exit points is just not available. VectorVest simplifies the analysis down to a few minutes but it takes focus and in a busy world that’s not always easy.

In a previous life I did a lot of training at the institutional level for many of the leading banks of the world. This was in an era where the banks had large proprietary trading floors which is not the case today. Over a few years I evolved four styles of trading and on each trading desk it was important that there were traders spread across all four techniques.

These trading styles were intraday, 2-3 days holds, swing trades lasting 5 to 21 days and longer term trades which last from 5 to 8 weeks. The objective was that the trading desk wished to diversify with respect to trading methodology. If the markets were trending the long term trades and swing trades would do well. If the market was consolidating then the intraday and 2-3 day holds would do well.

It’s the last style of trading which I call weekly zone trading (WZT) which I wish to detail here today. It makes an excellent style for those who can only focus on the markets at the weekend. The technique uses weekly charts and in theory the entries and exits need only be monitored once a week. Most trading platforms will allow resting entry orders to be placed with attached stops if they should be filled. Let the platform do the work.

The technique uses a weekly chart of LSE equities which can be easily found on VectorVest. When a chart is loaded the program defaults to a daily chart. There is a “dropdown” at the top of each chart where this can be changed. I normally load a weekly chart over 3 years.

The next step is to add two moving averages and save the layout as a template so it can be easily added to any chart in the future. If you right click on the blue header above “Price” on the right hand side of the chart there is a drop down where the averages can be added very easily. If you struggle with any of this detail please call support immediately and they will help. It’s a free call on 0800 014 8974 in the UK and 0800 981 891 in SA.

The averages used are 20 week and 40 week. If you apply 20 and 40 to the weekly chart then they are automatically 20 week and 40 week. If you apply the same template layout to a daily chart then they are automatically a 20 day and a 40 day average. Please remember this technique is ONLY applied to weekly charts.

In this article I will focus on buying shares although the technique can be as easily used to find short positions. As we are buying shares most of the candidates should have excellent fundamentals as defined by VectorVest. Putting the technical picture together with the fundamental position adds enormously to the reliability of the technique and the returns made. I wish to focus on undervalued shares with a high earnings potential which is RV in VectorVest speak.

Quite simply if the 20 week crosses above the 40 week then the trend is UP on the share. If the 20 crosses down over the 40 then the trend is Down. Using weekly charts clears a lot of the noise and finds some big trends easily and without much fuss.

If the trend is UP then the 20 will be above the 40. I call the area between the 20 and the 40 the “Zone” and this area is the crux of the technique. The technique does not try to find the start of a trend nor does it try to get onboard when the 20 crosses the 40. The technique looks for a BUY signal when the 20 is above the 40 and the price action (weekly) pulls back into the Zone between the 20 and 40 weekly averages.

At this point please stop reading, open VectorVest UK and load a weekly chart of Randgold Resources over the last 3 years. Apply the 20 and 40 week averages and save the layout. This is the time for that call if you are struggling. The strong silent type has only ever worked for Clint Eastwood.

On this chart the 20 crossed above the 40 in February of 2016. As stated the technique does not try to find the start of the trend but rather get onboard at the first pullback. My mentor MR Gann stated that the safest place to buy is after the first “rising bottom”.

Randgold ran strongly in to March/April 2016 and then pulled back into the zone. That’s where we get ready to get onboard after a positive confirming weekly candle or bar. All of the reversal candle/bar patterns are exceptionally accurate on a weekly chart in the direction of a major trend. In Randgold there was an outside week at the end of May which provided an excellent entry. The entry was the market breaking above the high of that week. The entry should have been placed as a resting order on the Monday morning after the signal fired and a stop placed at the low of the setup weekly candle. A simple sum should have been done to calculate the number of shares to be bought so that only 1% of the account would lost if the trade fails.

The weekly bar/candle reversal patterns are well known in technical analysis. I use just a few of them. These are outside bars where the range of this week (low to high) engulfs the range of the previous week or weeks. I also use weekly “hammer” candles. This is where the market opens, falls to a low and then reverses to above or close to where the market opened. The candle thus has a long tail which I suppose resembles the shape of a joiners hammer.

If you load a weekly chart of Dart and apply the 20/40 template there is a great example of a hammer at the start of February. Dart pulled back into the zone and then charted a bullish hammer. A resting buy order above the high of the hammer with a stop below the low would have produced a very successful trade. In November 2015 there is also an outside week which also produced a successful trade. The chart of Dart is shown below.

david

At present Dart has pulled back into the zone but no such reversal pattern has been charted. There is nothing at present to do in this share although I will be watching carefully for a reversal but only this time next week.

I also look for “Morning star” candle patterns to initiate a trade when the market in question pulls back into the zone. This is a 3 week pattern which includes a down candle, an indecision candle (open and close at the roughly the same price) and an up candle.

Technical Trader Stephen Bigalow adds an extra moving average to the candle reversal patterns and he argues that this increases the hit rate of the candle reversal pattern. The technique is simply an 8 period (week in this case) exponentially smoothed moving average. Bigalow calls the average the T line or the trigger line. Simply if the reversal pattern candle closes above the 8ema, then this increases the probability that a tradeable move will occur. If you add this rule to your trading plan and the 20/40 template, it frequently means that you have to wait for another week after the reversal pattern is charted before entering the position. Clearly this means that the stop will be higher in value and that means less shares traded so as only 1% of your capital will be lost if the trade does not work.

I think that the 8ema as a filter has considerable merit and it removes the sometimes subjective analysis of the reversal pattern.

Several weeks ago I highlighted the Admiral Groups, BATS and several others as potential buys. This was done using the 20/40 technique and those shares have fared well. During the past week I did an interview on Tip TV with Zak Mir where I identifies five Ft100 shares that looked good. They were all spotted with this technique and all 5 have had a very good week indeed. The interview with Zak is on the blog at www.vectorvest.co.uk/blog and all of the shares discussed look capable of further gains in the weeks ahead. Admiral looks particularly strong.

I am looking at JD Sports and Cranswick in the Ft250. Both shares have great fundamentals on VectorVest and have pulled back into the 20/40 weekly zone. Both shares have charted reversal patterns last week. JD Sports has charted a hammer and Cranswick a morning star. Neither share have closed above the 8ema. I feel that conservative traders should add the 8 ema into the mix.

Targets are far from easy. In shares with good fundamentals as rated by VectorVest many investors will use the weekly zone trade (WZT) to finesse an elegant entry point and from there just sit. That’s probably the best thing to do in JD Sports for instance. Traders should learn to count. In my experience of this technique (which runs to about 20 years) the moves tend to last 5 weeks. If you were to exit and look for other opportunities after 5 weeks, or at least bank some and keep a fairly tight stop, I think you will be pleased. Some moves will last to 8 weeks and every now and then there will be a 13 week move. Staying in the position as long as the market is above the 8ema can keep you in these big moves but also give back a lot of profit if the move reverses after 5 weeks. There is no exact answer and it’s vital that you have decided on your exit technique in advance as a part of a written trading plan.

The 20/40 technique can also be used to initiate short positions and I will tackle that in another post during the week ahead.

I have covered a lot of ground in this entry and I hope it has given you some ideas to personalize into your trading plan.

David Paul

July 2nd 2016

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