the analysis consists of three factors. the first is the ... · the top 5 pairs are selected, and...

January 26th, 2019 A publication of Guppytraderscomsg Pte Ltd since 1996 CRN200409379K. Copyright © 2015

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Weekly for Saturday January 26th, 2019. Based on Thursday’s Close

CONTENTS

NAVIGATING 2019 - OPTIONS pg1 NAVIGATING 2019: CANDIDATES pg7

EUR$ STRATEGIC ANALYSIS pg14 NEWSLETTER OUTLOOK: RALLY TREND TEST pg15

PORTFOLIO CASE STUDIES: MONEY MANAGEMENT pg16

NAVIGATING 2019 - OPTIONS

How to navigate what promises to be an even bumpier ride in 2019

than it was in 2018? There are four competing approaches. 1) apply database research based on technical analysis features to

develop a list of potential candidates. We will apply some of these

searches in the coming weeks. 2) ride on the back of research done by others. This is covered in a

separate article this week. 3) The third approach is to move away from equities and focus on other

market types. We favor Foreign Currency trading – FX – because it offers high liquidity, lower volatility than stocks, and leveraged returns. It has other disadvantages, and we will show how these

risks are mitigated. 4) The fourth approach is the use of CFDs

Foreign currency trading provides a highly leveraged trade opportunity.

Most of the trades are intraday or held over 2 or 3 days if the trend behavior is very strong.

The trade opportunities are identified using the 5-day average range of price. This is listed on http://www.antssys.com/support/average-daily-range/ and updated every day after the London close. Here’s the list for

Friday.

http://www.antssys.com/support/average-daily-range/

http://www.antssys.com/support/average-daily-range/


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The top 5 pairs are selected, and then analyzed for trading

opportunities using the GMMA and the ATR indicator available in the MT4 Charting package. The best trading opportunity is selected. (This analysis

and trade method also applies to commodities and index trading)

The analysis consists of three factors. The first is the strategic analysis

of the trend. The second is the tactics applied for the trade. Is this a rally


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trade, a trend continuation trade, a breakout trade, or a trade that fades the rally where we expect the price to pull back from a resistance level. This sets up the trade tactics.

The third factor is the stop loss, entry and exit conditions. The stop is set in stone, but the entry conditions are a little more flexible. The risk in

these trades is also managed by using a smaller amount of trading capital. We limit these case study trades in the newsletter to $5000.

The target is calculated using the 5-day average range. This exit target

is achieved in 85% of entered trades. The target is 75% of the 5-day average range.

These notes which are available to Axi clients, combine the analysis features. (For a limited time we can provide a trial copy of these notes to newsletter readers. Please send a request to [email protected])

Once the trade is opened it is managed with a 10- or 30-minute chart.

The time frame can expand only if the trade is in-the-money. I.e. in profit and the new stop condition keeps the trade in profit. This may turn a single day trade into a multiday trade. This case GBP/AUD trade has already exceeded

its trade plan target.

mailto:[email protected]


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The update chart shows how this trade has developed. It remains open.

This case study trade is added to the case study portfolio as an

example of how FX trades are incorporated into a diversified portfolio approach to trading. Although we personally trade FX more frequently, we


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add a case study trade only 2 or 3 times a year to the case study trade portfolio.

You can download the ATR indicator for MT4 at https://www.mql5.com/en/market/product/29683 Use this to improve your trade risk

management.

CASE STUDY EQUITY CURVE

The case study portfolio return is $27,122 or 27.1% for the period starting

July 1, 2018 and ending June 30, 2019. For the year starting July 1, 2017-2018, the case study portfolio return is

$115,330 or 115.3%. For the year starting July 1, 2016-2017, the case study portfolio return is $92,464.15 or 92.5%. For the year starting July 1, 2015- 2016, the case study portfolio return is $156,450 or 156.45%.

Equity trade size is generally kept constant at $20,000 in the case study portfolio so it is easier to compare the case study trades over this and other years.

Unless otherwise noted in the trade management notes, all equity case study trades are managed on an end of day basis, with the exit taken at the best reasonable price on the day after the stop loss is triggered.

Warrant and CFD trades are generally kept constant at $10,000. Warrant and CFD trades are closed on an intraday basis using a guaranteed stop loss as this is a

primary method of managing derivative risk. FX trades are generally kept constant at $5000. Stops are managed intraday.

This capital allocation reflects the risk in each of these asset classes.

https://www.mql5.com/en/market/product/29683

https://www.mql5.com/en/market/product/29683


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NAVIGATING 2019: CANDIDATES

How to navigate what promises to be an even bumpier ride in 2019 than it was

in 2018? There are four competing approaches. database research based on technical analysis features to develop a list

of potential candidates. ride on the back of research done by others.

These initial search lists are published around the Christmas break, and then again around midyear. They provide a starting point for further technical analysis. We will be using this list below as a starting point for

analysis and we will show you the methods we use. move away from equities and focus on other market types.

use CFDs

How useful are these lists? They are practically useless in identifying stocks that will go up, but they provide a good starting point for further analysis and careful

selection. They are useful because these lists attract crowds and that provides the liquidity needed for trading. In 2015 we took the list of 15 hot tips for 2015 published by Huntley’s. These were stocks they thought would go up in 2015. At the end of

2018 only 2 stocks had reached or exceeded the target price at any time in the intervening 3 years. That’s an 87% failure rate! Some candidates at the end of 2018

were down more than 75% on the 2015 entry price. Most were down between 30% and 50%.




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It is a serious error to believe that these services are able to provide better than coin-toss analysis, or to do better than you can by applying good technical analysis and risk management. Unfortunately, they take the failure of their analysis

methods as evidence that the market is irrational and conclude that cannot be forecasted.

As we have shown many times over the past 20 years, careful selection from these lists, and careful management of the trades, does return better results, and results that are better than indexc performance.

WHAT TO AVOID

Our search starts by bringing up a chart of each of the 100 stocks on the list above. The key feature was the absolute dominance of downtrends that had been in place for between 5 and 8 months. The most common pattern found – more than

40% of stocks – was a strong downtrend. These are good shorting opportunities, but unsuitable for long side trading.

The second most common pattern found – more than 40% of stocks – was a

strong downtrend with a rally that has been defeated by resistance from the long term GMMA.


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These are stocks to avoid. Traders want evidence that the breakout can be successful. The chart below shows an unsuccessful breakout with a retreat into the

values of the long term GMMA.


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Stocks with these patterns are avoided, although they remain on a watch list for future breakout developments.

LIST CANDIDATES We looked at 100 stocks on the list and only 6 of them offered any potential for

a sustained trend breakout, or to join an established uptrend. That’s a very poor hit rate, although given recent market conditions it’s not surprising. In selecting 3 trade example candidates from this list we are looking for:

The strength of the breakout The GMMA relationships

Compatibility with a sound stop loss method, CBL or ATR The two candidates that meet these conditions are added as case studies.

CAR This is a good case study of a fast rebound and rapid compression in the long term

GMMA. The breakout is confirmed with a gap up.


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Entry is taken on the next day near $12.10. Stop loss uses the CBL and is set at $11.66 on the day of entry. This puts $727.27 or less than 1% of total trading capital

at risk.


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NUF This example shows a slower and more steady breakout. Long term GMMA has compressed and turned up. Short term GMMA is completely

above the long term GMMA. This is usually associated with trend strength.

Entry is near $6.40 with the CBL stop loss near $6.18 on the day of entry. Note that the entry is taken on the day after the CBL calculation. This puts $687.50 or less

than 1% of total trading capital at risk.


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RSG This example is entry on a pullback to the long term GMMA after a successful breakout. This is entered in anticipation of a rebound from the lower edge of the long

term GMMA.

Entry is near $1.12 with a tight stop at $1.10. This puts $357.14 or less than 1% of total trading capital at risk.

These three case study examples highlight the methods used in the current

market to trade the developing breakouts.


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EUR$ STRATEGIC ANALYSIS By Daryl Guppy

It’s always useful to step away from the daily and intraday chart to establish the strategic outlook for currency pairs. That way traders know if they are trading with

or against the secular trend. If it’s a rally in the context of an uptrend then the rally is most likely to continue so profit stops can be expanded. If it’s a rally in the context of a downtrend then the rally will probably fail so profits stops need to be tightened.

July 2017 the EUR$ broke out above the long-term resistance level near 1.145. It was a significant bullish break because 1.145 had been a strong resistance level

starting in January 2015. For two long years the EUR$ trading approach had been based on extended rallies between 1.05 and 1.145.

Trading bands are powerful forces. The width of the trading and was projected

upwards to give a target near 1.24. This was achieved in February 2018. However, the EUR$ did not repeat the behavior seen in the previous trading band. Instead there

was a fairly steady trend rise to the target level, followed by consolidation around resistance and then a sudden fall. The EUR$ conciliated around 1.145 and used this

level as a support level before dropping below this level in November 2018. For the past three months the 1.145 level has acted as a resistance level. This

is best seen on the weekly chart. This persistent resistance suggests that the EUR$

trend remains down. Traders are alert for continued falls below 1.145. This means they will short any rallies.

The downside targets are taken from the previous activity inside this lower

trading band. The first target is 1.115. The second downside target is 1.085. These levels, taken from the weekly chart, are placed on the daily EUR$ chart.

They provide a strategic context for daily trading. This analysis provides the confidence for adding to short positions and trading long positions with confidence.

The strategic analysis should always provide a background to the daily trade as

this determines how capital and profit stops are placed.


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NEWSLETTER OUTLOOK: RALLY TREND TEST By Daryl Guppy

The very strong rally from the low near 5400 is consolidating near 5800.

For a true new uptrend to develop we need to see a retreat that uses a support feature as a rebound point. This is often near to the value of the

upper edge of the long term GMMA, currently near 5780. It’s the rebound from support that confirms the potential for the rally

develops into a new and sustainable uptrend. The rebound also provides the

second anchor point of the placement of a trend line. Traders wait for a retreat and retest of the upper edge of the long term

GMMA as a support area. A successful test gives an upside target near 5940 and then 6120. It remains a bullish start to 2019.

The long term GMMA has compressed and turned upwards. This shows investors have stopped selling and are becoming active buyers. The value of

the lower edge of the short term GMMA has moved above the value of the upper edge of the long term GMMA. This is usually associated with a

confirmed trend breakout. Investors and traders will watch for and trade other individual stocks

to replicate this behaviour.


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The XJO developed a small inverted head and shoulder pattern and the current rally breakout can be seen in this context. This pattern target projection gives a target near 5980. This is treated as an indicative target because the historical resistance

levels provide more reliable target areas. However, the inverted head and shoulder pattern support the bullishness of the breakout pattern.

PORTFOLIO CASE STUDIES: MONEY MANAGEMENT

Starting cash position $100,000 - no brokerage or slippage 2% of risk = $2,000

NOTE Entered date is the newsletter date which contains the case study discussion. OVERALL PROFIT TO DATE

The case study portfolio return is $27,122 or 27.1% for the period starting July 1, 2018 and ending June 30, 2019.

The case study portfolio return is $156,450 or 156.45% for the period starting July 1, 2016-2017. Note that this includes 6 to 21 trade results. The case

study portfolio return is $92,464.15 or 92.5% for the period starting July 1, 2015- 2016. Equity trade size is generally kept constant at $20,000 in the case study portfolio so it is easier to compare the case study trades over this and other years.

Unless otherwise noted in the trade management notes, all equity case study trades are managed on an end of day basis, with the exit taken at the best reasonable price

on the day after the stop loss is triggered.

CUSTOMER CAUTION NOTICE AND COPYRIGHT Guppytraderscomsg Pte Ltd (CRN 200409379K) Pte Ltd is not a licensed investment advisor. This publication, which is generally available to the public, falls under the Singapore Media Advice provisions. The information provided is for educational purposes only and does not constitute financial product advice. These analysis notes are based on our experience of applying technical analysis to the market

and are designed to be used as a tutorial showing how technical analysis can be applied to a chart

example based on recent trading data. This newsletter is a tool to assist you in your personal judgment. It is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any particular person's investment objectives, financial situation and particular needs because readers come from diverse backgrounds, with diverse objectives and financial situations. This information is of a general nature only so you should seek independent advice from your broker or other investment advisors as appropriate before taking any action. The publication should not

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copies. If we find that you are redistributing the newsletter then, at our discretion, we will reduce the length of your paid subscription by the value of the multiple copies we believe you are circulating. Share with nine friends, and we cut your subscription period by 90%. Contributed materials reflect the personal opinion of the authors and are not necessarily those of the publisher. Articles accurately reflect the

personal views of the authors. Stocks held by the authors are marked* and are not to be taken as a trading recommendation. This is not a newsletter of stock tips. Case study trades are notional and analysed in real time on a weekly basis. Any past investment-related performance .

referred to may not be indicative of future results, and therefore, no reader should assume that the future performance of any specific investment, investment strategy will be suitable or profitable for a reader's portfolio, or equal historical or anticipated performance level(s). Guppytraderscomsg Pte Ltd does not receive any benefit or fee from any of the stocks reviewed in the newsletter. Guppytraderscomsg Pte Ltd is an independent international financial education organization and research is supported by subscription fees. Please note that in the interest of timely publication of the newsletter,

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