Focus on: AB Dynamics

Ab Dynamics PLC is a United Kingdom-based company engaged in the design, manufacture and supply to the global automotive industry of advanced testing and measurement products for vehicle suspension, brakes and steering both in the laboratory and on the test track. The Company’s products service include Kinematics and compliance testing, Vehicle dynamics testing on the track, Driver assistance system testing, Driverless vehicle track testing, Steering system testing and Noise/vibration (NVH) testing of power train assemblies. The Company’s products include Suspension Parameter Measurement Machine (SPMM), Steering System Test Machine (SSTM), Driving robots, Driverless Test Systems, Soft Crash Target Vehicles (SCTV) and Powertrain NVH Testing.

The chart of AB Dynamics is shown below and it shows a very positive story for the share which is listed on the main market and has a market cap of 88 million pounds.

ABDP.L is undervalued by the market and growing sales and earnings per share strongly. After a strong advance the price has consolidated within one of my favourite chart patterns which is named an ascending triangle. Within the ascending triangle it quite easy to see the 5 wave structure which makes the consolidation nigh on a text book example of this very bullish pattern. My mentor MR. W D Gann always instructed that markets should break on its fourth attempt and that is what ABDP is trying to achieve at the moment.

On VectorVest the share has been given a BUY recommendation during the last two trading sessions.

david

On the left of the chart the vertical line represents the size of what chartists refer to as the “flagpole”. This distance in pence should be repeated if and when the share breaks from the ascending triangle. That would result is a technical objective of around 700 which is close to the VectorVest calculated fundamental value of the share. The value is charted as the green line above the price in the chart above.

At VectorVest we believe is combining fundamentals analysis and technical analysis and getting the best of both worlds. Our objective is to buy shares with outstanding fundamentals that are trending higher WHEN the general market is moving upwards.

ABDP certainly tics the boxes for both its fundamental and technical position but the technical position of the general market is poor. The technical position of the VectorVest Composite has improved slightly on Friday November 18th with the trend situation summarized as UP/Down. This means that the Primary Wave or short term trend of the overall market is positive while the underlying remains down. The advice on the front page recommends caution and that is sage advice. There are no green lights on the Color Guard as yet.

Please brush up on the sequence which takes place at each and every turn. I have detailed them here a dozen times.

Firstly the Primary Wave turns (that’s done) and then green lights in the price column are sighted. At this point aggressive traders can start to accumulate shares. If the trend persists the next signal should be a black star within the green light. This indicates that the trend has been confirmed by momentum. In VectorVest speak this is known as the price trend being confirmed by the RT Kicker timing system. Next the DEW market timing system should print a Buy signal followed by the underlying trend turning Up. Finally the underlying trend is confirmed by price action. This is the most conservative Buy signal on VectorVest and is known as a Confirmed Call. At this stage even the most conservative investor should be onboard. The Confirmed Call is the timing method used in the conservative trading plan known as Worry Free Investing.

In summary both the technical and fundamental position of Ab Dynamics look excellent. When the advice on the front page of VectorVest advocates that it’s safe to accumulate shares, then ABDP.L is worthy of your attention.

David Paul

November 19th 2016

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How to control an emotional response to trading…

All traders are different, both in their approach to the markets plus in the emotional range they experience. Some will deal with a winning streak calmly and carry on working hard at following their plan whereas other will become overly excited and then prone to overconfidence. That overconfidence can result in them deviating from their plan and taking trades they would not previously even considered.

Having a winning streak is certainly something to enjoy but we should not allow it to change our emotional state. If we do, we succumb to greed and we all know what a danger that can be.

At the other end of the range are feelings of under confidence and even a form of short term depression when we’ve had a few losers. Inadequacy is another emotion many will feel as they search for reasons why they ‘will never make it as a trader’. During phases like this, it’s very easy to get trapped in a negative cycle of thinking and it’s probably this that results in so many traders quitting in their first year.

Do these emotional ranges disappear with experience? Yes. Do they disappear entirely? No. You just get very good at controlling your emotions and not allowing them to affect your decision making. For example, last week was my first losing week in a good couple of months or more. Is it frustrating to have been on the wrong side of trades? Yes absolutely but this is how I manage myself when experiencing a loss.

Firstly, always put that loss into perspective. It’s simply a drawdown that should actually be expected as no single strategy or methodology can be profitable all of the time. Statistically, if we had a win rate of 60%, we should expect a run of 10 consecutive losses at some stage, that’s simply mathematics. So when I have a losing week like last week, I can put it into context. By doing this, I won’t feel the same extreme of emotional response that a less experienced trader is going to feel. Was I mildly frustrated? Last week yes because some of my decisions during the election period could have been better but I don’t allow it to grow into anything more than that.

Secondly, learn to let go of the past. We can’t influence what has happened, but we can influence what will happen. I use the expression of ‘dusting myself off’ after having some losses so I’m preparing for the fresh challenges that lie ahead. Last week’s loss was probably 1 week in many more weeks of losses that will occur over the next 10 years or more so why worry about it? Focus on learning from any of the mistakes made and go into the following week as if it’s a brand new start. Do not carry the emotional baggage of previous losses with you.

By approaching the markets in this way, I can disregard any negative emotions and focus on what’s important, executing according to my trading plans. That way, I’m quickly back in to the following week without worrying about what’s just happened…..

Moving over to the markets, the Euro is on the charge south with both the technicals and fundamentals aligned. Looking at the monthly chart, it has reached the trendline that started back from 2000/2001.. A bounce is possible in this zone but considering this is the fourth test of the trendline, I would look for any bounce to eventually fail and the Euro look to test those lows from 2015….

simoneuro

Charlie Burton

Ezeetrader

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Successful launch of RTCT Live! event in London

On Saturday, 5th November 2016, Over 400 active traders converged on the Grand Connaught Rooms in Central London for a memorable day of live seminars, one-to-one meetings, and networking with industry experts.  The event was sponsored by Activtrades UK and supported by many leading service providers to the retail trading community.

The next event is set for 6th May 2017 – click here for details

If you missed the live event, don’t forget you can join us every month at the Round the Clock Trader Online webinar featuring 12 experts speakers in 12 hours – Click here for details of the next webinar

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Steve Ward from High Performance Global talks to attendees at RTCT Live!
Steve Ward from High Performance Global talks to attendees at RTCT Live!
Peter Read from Pelican Exchange talks to attendees at RTCT Live!
Peter Read from Pelican Exchange talks to attendees at RTCT Live!

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George Hallmey from Click Events talks to attendees at RTCT Live!
George Hallmey from Click Events talks to attendees at RTCT Live!
Francis Hunt, The Market Sniper, talks to attendees at RTCT Live!
Francis Hunt, The Market Sniper, talks to attendees at RTCT Live!
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Crazy traders!

I have a confession. When I started trading I was definitely on the ‘greedy’ side of the emotional spectrum of market participants. I wanted to make a lot of money fast and I did it. Then I lost it all just as quickly. It took me a couple of years to realise that high risk trading will ALWAYS result in a blown account. Even if I made a ton of money, it would only take a simple drawdown period for me to be back to square one again.

Ultimately though, I was one of the lucky ones in realising my weakness and changing my bad habits that would have ultimately seen me out of this business before I even had chance to develop into a proper trader. I spend a huge amount of my time trying to tell traders about the inherent risks in trading with high leverage and yet still find those very same traders ignoring the advise and doing it anyway – only for them to blow their accounts as a result!

It’s sad to see this happen because some of these traders are actually pretty good in other aspects of their trading but high risk is like the grim reaper, it will ultimately be your calling card.

I think I’ve mentioned this book before but ‘The hour between dog and wolf’ by John Coates explores the reasons why traders make certain decisions at a biological level. Yes you did read that correctly!

Anyway, numerous experiments were conducted with institutional traders and one thing was common among all of them. The guys that traded with high risk ALWAYS ended up failing. Even those who had made stellar returns over 2, 3 or even 5 years ultimately blew up because at some point, taking those high risk trades won’t pay off and those previous years become meaningless.

So when I hear and see individual traders putting in some pretty decent returns on their accounts, but as a result of trading way too big on a single position or using nightingale in an irresponsible way, I know it’s only a matter of time before the reaper arrives. They can actually ‘get away’ with this type of trading for quite some time in fact, but all that does is cement a bad habit. Ultimately, they will get caught and caught badly.

My advice is think about being around for the long term because trading like that will guarantee you’re not. Be patient and make your money slowly. You can still do extremely well from trading without having to do this.

Moving over to the markets, there’s very little point discussing what may happen due to the volatility coming with the election this week. Stay safe and stay flat through the election. Brokers love a hero, but your account balance wont….

Have a great week

Charlie Burton

Ezeetrader.com

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Confirmed Down preceded by MTI Divergence

For what seems like months I have been writing about the divergence between the price of the VectorVest Composite and the proprietary VectorVest MTI indicator. The MTI is a momentum indicator based on the combined rate of change of both the price and breadth of the Composite. The breadth is measured each and every day by calculating the number of shares on a VectorVest BUY recommendation divided by those of a sell. The metric is known as the BUY/SELL ratio and it’s an important part of the various VectorVest Market Timing systems.

The divergence started in Mid-August 2016 but could only be labelled as a divergence from the first week of October. In the first week of October the Composite made a new high but the MTI charted a falling high. This is known as bearish normal divergence. As its name suggests the pattern is an advance warning of a change in trend.

The chart of the UK Composite is shown below and the divergence is clearly marked. However there are many other interesting facets to the chart which also pointed out the rout of the last week, well in advance. I have written about them all in the column over the past month.

To start with, the mirror image of the bearish normal divergence of the last month occurred in February this year. As the market collapsed into the middle of February the Composite charted a new low while the MTI could not follow and charted a rising low. This is known as bullish normal divergence and it preceded the upward move in the UK market which has been in place for most of this year. Divergences are leading indicators of change. I have spent many years studying their nuances and there are many. Bullish signals from price which are preceded by bullish divergence have in my view extra validity as was the case when the Confirmed UP signal fired at the end of February 2016.

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During the last week the most conservative bearish signal on VectorVest fired and similarly a bearish signal from price which is preceded by bearish divergence should be taken very seriously by all.

david1

On the chart of the UK Composite I have marked a “rising wedge” pattern. This pattern goes by many names. The Elliott people refer to the pattern as a “diagonal triangle” while harmonic pattern traders call it a “three drives pattern”. Some refer to the pattern as “three little Indians”.

In essence the market charts 5 waves from a major low while the trend lines defining support and resistance within the pattern are converging. It a very bearish pattern and normally leads to a strong reversal. I have traded the pattern on all timeframes and in all asset classes. From the low in January the 5 major waves upwards are fairly easy to see. In the seminars when I see faces contorting in a vain effort to observe the patterns I lighten the atmosphere by relating “the first ten years are the worst”. That’s certainly the case in anything Elliott related.

Over the past few weeks I stated over and over again that when the market broke the trendline defining the lows of the pattern that the technical picture would have deteriorated significantly.

If you can observe the five waves upwards, from the low in February, please assign them numbers from 1 to 5.

1 is the low of the middle of February and 5 is the high of a few weeks ago. 2 is the Brexit low and 3 the high in the first week of August. 4 is the low of the 13th of September.

I have noted over the years that a trendline drawn from 1 to 4 determines a target for the pattern. It’s my own observation but the target has proved exceptionally accurate over the years. I once vowed that I would never ever give the construction away to the public but as I get the wrong side of 60 it seems to matter much less. I have drawn the line on the chart and as you can see the target was met on Friday. This is also the case on the Ft100. Does this mean that the market cannot fall further? It certainly does not, but it does mean that the pattern has shot its bolt in terms of predicting the future. The market is now very oversold and technically it should bounce very soon. Only a major news event would cause a further fall without a rally. I think you would agree that there is scope for such an event on November the 8th.david2

I have expanded the chart of the Composite to show the detail of the past three months and removed the MTI to allow the price action to be more clearly viewed. On this chart there is a classic harmonic pattern known by traders versed in this art as a “butterfly”. The pattern is defined by a fall and then a 3 wave pattern to a new high. The fall between August 15th to September 12 is the wave down which is followed by a three wave pattern to the high of the 11th of October. Harmonic traders refer to this as an AB=CD pattern. In the pattern wave AB is the same size in points as BC. What really alerted my attention was the fact that the high made on the 11th October (annual high) was a 1.27 extension of the selloff prior to the AB=CD rally. The high of 11th October was the perfect place for harmonic traders to short the market and I assure you there are lots of the breed around.

As the market fell from the 11th of October the entire gamut of VectorVest signals have fired in a near perfect order. I have stated the signals here many times. The Primary Wave turned to down on October 26th. This was followed by a red light in the Color Guard and the red light featured a black star within the red. This means that price is falling and the momentum of price was also falling. This occurred on the October 31st and it is a very powerful signal. The DEW technique gave a sell signal on the 1st of November and finally the Confirmed Down kicked in on the 3rd of November. All of these signals are objective and require no subjective input. I believe (and thus it’s true for me) that these signals become much more accurate when preceded by MTI normal divergence.

I cannot decide which of the Market Timing systems that you should follow. That needs though by each trader/investor. It needs to part of a written trading plan.

On the 31st after the red light sell which was confirmed by the RT Kicker trading system (momentum falling) I raised cash by exiting some of my positions. I go into the USA elections only 40% invested. I am holding JD Sports, Trifast, Hastings and Cranswick.

I have a shopping list ready should the market give some green lights over the next week.

Please spend some time on recognizing divergences.

David Paul

November 5th 2016

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