marketworx: technical analysis & trading shaun van den berg 11 october 2011

MarketWorx:MarketWorx:Technical Analysis & TradingTechnical Analysis & Trading

Shaun van den Berg

11 October 2011

Make Money

Investor

Trader

TechnicalAnalysis

WEN Charting

PositionTrading

DayTrading

SSFEquities CFD

AgendaAgenda

Swing Trading

Share Market AnalysisShare Market Analysis

Share MarketAnalysis

FundamentalAnalysis

Technical Analysis

MacroFundamentals

MicroFundamentals

VolumePrice

Technical Analysis

Technical

Analysis

Fundamentals

Trends

Supply & DemandSupply & Demand

PricePrice Volume

Patterns

Market Psychology

1st StageThings are

getting better

2nd StageImprovement

Is actuallyunderway

3rd StageThings will get better

forever

2nd StageThings are

deteriorating

1st StageThings

would not always be

rosy

3rd StageThings

can only get

worse

Technical AnalysisTechnical Analysis• Price Charts

– Closing Line Charts – Bar Charts– Bar Volume Charts– Point & Figure Charts– Candlestick Charts

• Breakout Trading– Cycle & Trend Analysis– Support & Resistance– Trend Lines– Continuation Patterns– Reversal Chart Patterns

• Swing Trading Strategy– Moving Averages

• 10-day SMA & 30-day EMA

• 200-day SMA– Technical Oscillators

• OBOS & Momentum• RSI & Stochastic• MACD

– Volume Analysis• On Balance Volume• Volume Price Trend

– Relative Strength Analysis• Relative to Sector • Relative to JSE Overall

Price Charts: Closing Line ChartPrice Charts: Closing Line Chart

Price Charts: Bar ChartPrice Charts: Bar Chart

High

Close

LowOpen

Price Charts: Bar Volume ChartPrice Charts: Bar Volume Chart

Price Chart: Point & Figure ChartPrice Chart: Point & Figure Chart

Point & Figure Charts – Double Top Formation

Point & Figure Charts – Double Bottom Formation

P & F Charts - Variations of the Double Top & Bottom Formation

Point & Figure Charts – Bullish Signal Formation

Point & Figure Charts – Triple Bottom Formations

Point & Figure Charts– Formations in Combinations

Point & Figure Charts – – Variations on the Triple TopVariations on the Triple Top

P & F Charts - Variations on the Triple Bottom Formation

Point & Figure Charts – Bearish Signal Formation

Point & Figure Charts – Symmetrical Triangles

Point & Figure Charts – Triple Top Formations

Point & Figure Charts – – The Broadening FormationThe Broadening Formation

Point & Figure Charts – Bullish & Bearish Catapult Formations

P&F Charts– Bullish & Bearish Signal Reversed Formations

Point & Figure Charts– Bullish & Bearish Support Lines

Point & Figure Charts– Bullish & Bearish Resistance Lines

Horizontal Count (Upside)

The upside target in the chart below = (14 x 5 x 3) + 0 = 210c

Horizontal Count (Downside)

The downside target in the chart below = 100 - (6 x 5 x 3) = 10c

Price Chart: CandlesticksPrice Chart: Candlesticks

Gather Information: Technical Analysis Checklist

TrendingTrending(Up/ Down)(Up/ Down)

Outperformance/Underperformance

Overbought/Overbought/OversoldOversold

Cycles Cycles Support & Resistance Support & Resistance

Moving AveragesMoving AveragesTrend LinesTrend Lines

OB/OS & MomentumOB/OS & MomentumRSI & Stochastic / MACDRSI & Stochastic / MACD

OBV & VPTOBV & VPT

Relative StrengthRelative StrengthAnalysis Analysis

Trends & Cycles

Bull Bear

Sideways

Corrections Rallies

Trends & CyclesTrends & Cycles

Bullish Trend

Bearish Trend

Bullish Trend

Market Cycles - Bull

Higher Highs, Higher Lows

Market Cycles - CorrectionsMarket Cycles - Corrections

Market Cycles - BearMarket Cycles - Bear

Lower Highs, Lower Lows

Market Cycles - RalliesMarket Cycles - Rallies

Support & Resistance Reversals

Support & Resistance

Resistance

Resistance

Support

Support

Support

Resistance

Resistance

Support

Support

Support

Resistance

Resistance

Support & Resistance levels highlight possible “turning points”

Support

Resistance

Resistance

Support

Support & Resistance

• The more times a share price has touched these areas, the more valid

these levels are & the more important they become.

• The longer these support & resistance levels have been in play, the

better the outcome when the share price finally breaks out.

Support & Resistance - Bull

ResistanceResistance

Support

Resistance/Resistance/ Support Support

SupportSupport

SupportResistanceResistance

Support & Resistance - BearSupport & Resistance - Bear

Resistance/ Support

SupportSupportSupport

Support

SupportSupport

ResistanceResistance/ / Support Support



Trend Lines

SupportTrend Line

ResistanceTrend Line

SupportTrend Line

ResistanceTrend Line

As long as the price stays above/ below the Support or Resistance lines, the trend is either bullish or

bearish

Trend Lines - BullTrend Lines - Bull

Support Trend Line

Resistance Trend Line

SupportResistance Resistance


Support Trend Line

Trend Lines - BearTrend Lines - Bear

Support Trend Line

Support Trend Line

SupportTrend Line

SupportTrend Line

ResistanceTrendLine

ResistanceTrendLine

ResistanceTrendLine

ResistanceTrendLine

Failed Breakouts

Entry Points

•Once prices are set to close above a resistance level, a trader will establish a bullish position.

•When prices are set to close below a support level, a trader will take on a bearish position.

Exit Points• How long am I planning on being in this trade?

(Depends on what type of trader you are: Position, Swing or Day Trader)

• How much risk am I willing to take?– Setting near-term profit targets that execute at opportune times to

maximize profits. – Here are some common execution points:

• Retracement levels. • Trend line breaks (Support & Resistance). • Any other technical points.

– Developing solid stop-loss points that immediately get rid of holdings that

do not perform.

– Creating exit strategies based on technical factors affecting the short-term.

Exit Points• Where do I want to get out?

– Many people become irrationally attached to their holdings & hold these

equities when the underlying fundamentals of the trade have changed

– Traders sometimes worry & sell their holdings even when there has been no

change in underlying fundamentals.

• Both of these situations can lead to losses & missed profit opportunities.

– Set a point at which you will sell takes the emotion out of trading.

– The exit point itself should be set at a critical price level, i.e. technical

points e.g. Retracement levels

Rectangle Formation

24 to 30 = 6

Triangles

Ascending TrianglesTP

Descending Triangles

TP

Pennants

27 to 33 = 6

31 + 6 = 37

TrianglesTriangles

Triangles Triangles

TP

TP

Breakout Trading: The Steps

1. Identify the candidate

2. Wait for the breakout

3. Set a reasonable price objective

4. Allow the share to retest

5. Know when your trade has failed

6. Exit at your price target (TP)

7. Be patient


Resistance

Support118 to 137 = 19

137 + 19 = 156


Resistance

Support

Support

Resistance / Support


Resistance / Support

Support

Support

Resistance

Double Tops

Double Bottoms

Triple Tops

Triple Bottoms

Double Tops & BottomsDouble Tops & Bottoms

Double BottomDouble Bottom Double BottomDouble Bottom

Triple TopTriple Top

Double Tops & BottomsDouble Tops & Bottoms

Double Bottom

Double Top

Triple Top

Head & Shoulders

Head & Shoulders Target Price

Head & Shoulders

LS

Head

RS

Neckline

Head & Shoulders

Target Price

Inverse Head & Shoulders

8.5 to 10.0 = 1.5

10.0 + 1.5 = 11.5 TP

Inverse Head & ShouldersInverse Head & Shoulders

LSLS

Neckline Neckline

Head Head

RSRS

Target Price


LSLS

Neckline Neckline

RSRS

Head Head


LS

Head

RSRS

Neckline

LSLS

Head

RS

Neckline

Target Price

Falling Wedge

Rising Wedge

Falling WedgeFalling Wedge

19.55% in 5-days

Falling WedgeFalling Wedge

Breakout & confirmation

10.19% in 3-days

Increased volume

Rising WedgeRising Wedge

- 8.38% in 13-days

Breakout Trading: Conclusion

• Breakout trading welcomes volatility.

• The volatility experienced after a breakout is likely to generate emotion because prices are moving quickly & in a volatile fashion.

• Using the steps & information covered will help you define a trading plan that, when executed properly, can offer great returns & manageable risk.

“A good (trading) plan today is better than a perfect (trading) plan tomorrow”

General George S. Patton

The Trading Plan

“Trading provides one of the last great frontiers of opportunity in our economy. It is one of the very few

ways in which an individual can start with a relatively small bankroll and

actually become a multi-millionaire” Jack D Schwager

The Trading Plan

1. Know Yourself, Know Your Purpose

2. Trading Goals

3. Markets, Instruments & Timeframes

4. Tools of the Trade

5. Before the Market Opens …

6. Risk & Money Management

7. Exit Strategy

8. Trade Strategies, Setups & Entries

9. After the market closes …

10. Discipline

11. Golden Trading Rules …

The Trading Plan

Who needs a Trading Plan?Who needs a Trading Plan?

• Unless you are consistently profitable trader over a sufficient length of time to encompass a number of different market conditions – then YOU need a trading plan!

• If you have achieved this:

• – Refresher course– Open your eyes to

new aspects of trading that can improve your profitability

• Consistently profitableConsistently profitable

What will the Trading Plan Do?What will the Trading Plan Do?

• Makes the act of trading simpler• Limits your opportunity to make bad trades• It will prevent psychological issues• Act like a roadmap / Personal GPS

– Either something in the plan is not working– You are not adhering to the trading plan

• Take away much of the decision making– Emotional & irrational decisions

• Enable you to trade outside comfort zone– Prevent letting losses run & cutting profits short

• Instill a large measure of discipline

1.1. Know Yourself, Know Your Know Yourself, Know Your PurposePurpose

• Understand your psyche & sentiment• Decide what you want to achieve, ask why &

how trading is going to provide it?• Why do you want to be a trader?• What sort of trader are you?• What are your strengths & weaknesses? • Are you in the right frame of mind to trade?• What are your income targets?

2.2. Trading GoalsTrading Goals• Setting goals are essential

– Beacon to work towards – Track progress – Motivation required

• Define goals in terms of your development as a proficient trader

– Annual Trading Goals– Monthly Trading Goals– Weekly Trading Goals– Daily Trading Goals

3. Markets, Instruments & Timeframes

• Decide which markets will you trade?• Which instruments will you trade?

– Basket of shares / whole market?– SSFs / CFDs – Top 40 / Mid Caps?– Currency Futures – Currency pairs?

• Which timeframes will you trade?– Day Trader – Minutes & Hours?– Swing Trader – Days & Weeks?– Position Trader – Months & Years?

4. Tools of the Trade• What financial vehicle will you use to trade?

– Equities, Warrants, CFDs & SSFs? • What broker & trading platform will you use?• What Live Prices are you going to use?• Which charting software will you use?

5. Before the Market Opens …

• What is your daily pre-market routine?– Have you analysed yesterday’s trades?– Do you have any positions open?

• What are the general market conditions?– What will you do today – hour by hour?

• Which instruments are on your watch list?

6.6. Risk ManagementRisk Management

General Risk ManagementGeneral Risk Management

• What is your attitude towards risk?

• What is the overall market risk?

• What is the sector risk?

• What is the broker & hardware risk?

• What is the strategy risk?

Specific Risk ManagementSpecific Risk Management

• What is the probability of a successful trade?

• What is the Risk-Reward ratio?

• What is your risk per trade?

• Where will you place your stop loss order?

• When will stop trading?

6. Money Management

General Money ManagementGeneral Money Management

• Large draw downs & profits

• What will you do?

• Which money management approaches will you utilise?

Specific Money ManagementSpecific Money Management

• Will you lock in profits?

• How will you determine your position size?

7.7. Exit StrategyExit Strategy• Losing trades

– Will you exit before your stop is hit?– Which signals will see you exit early?

• Winning trades – Which signals will see you exit completely?– Which signals will see you close half?– Which signals will see you close the

remainder?

8.8. Trade Strategies, Setups & EntriesTrade Strategies, Setups & Entries

• Which strategies will you trade?

• What are your trade setups?

• How will you find your setups?

• Which signals will trigger your entry?

9.9. After the market closes …After the market closes …

• Have you recorded today’s trades?

• Did you execute your trades according to your trading plan?

• Have you completed your trading journal?

10.10.DisciplineDiscipline

• Back test or forward test?• What are your promises to yourself?

– What questions do you ask after a winning trade?– What questions do you ask after a losing trade?

• What steps do you take to learn more about trading?

11.11.Golden Trading Rules Golden Trading Rules • Protect & preserve capital!• Always set a stop loss, always!• Cut your losses short – Let your profits run!• Trade what you see – Not what you think!• Never chase your losses, ever!• Never average down, ever!• Keep excellent records!• Maintain discipline!• Keep it simple! • Plan the Trade – Trade the Plan!

The 3 M’s

““While a trading plan cannot predict the future, it can lay down how you react to

the possible outcomes. This is why a trading plan is essential. It is a list of strategic responses to events beyond

your control. You control the only thing you can control – YOURSELF!”

Alpesh B. Patel [Author of the book “Trading Online”] Alpesh B. Patel [Author of the book “Trading Online”]

The 3 M’s - Mindset


• Attitude - How you react

• Self Confidence - Belief in yourself

• Objectivity - Increase impartiality

• Patience - Watching & waiting

• Discipline - Stick to your plan

"The longer I live the more convinced

I become that life is 10% what happens to us

and 90% how we respond to it.”

…Charles Swindoll


“Successful trading requires us to be aware of our emotions.

It often requires us to go against our natural inclinations or emotional

responses in order to see profits.”


Greed

The 3 M’s – Mindset

Greed

Fear

Caution

Moderation

Fear

Make Money

Investor

Trader

TechnicalAnalysis

WEN Charting

PositionTrading

DayTrading

SSFEquities CFD

TradingTrading

Swing Trading

Make Money

Investor

Trader

TechnicalAnalysis

WEN Charting

Swing Trading

Break-outTrading

Equities

AgendaAgenda

SSF CFD

CFD Product Description

Go ‘Long’ & ‘Short’ with CFD’s on Top 100 JSE listed shares

Margin deposit requirements15% Top 40 shares / 17.5% on next 60 shares

Variation margin required for adverse share price movement.

Brokerage = 0.4% per transaction Breakeven = 0.92% (VAT included)

Zero UST Financing at competitive rates: Financing at competitive rates:

Current borrowing rate 6.50% (Current borrowing rate 6.50% (± P± Prime – 2%)rime – 2%)

Minimum Exposure per trade of R25 000 (R4 500 margin)

Derivative - A contract whose value depends on (or derives from) the value of an underlying share e.g. share – ANG, BIL, SOL

Top 100 Shares: CFD Margin

List reset after each Quarterly futures Close out

15% Top 4017.5% Next 60

Important notes onImportant notes on CFD Long & Short Positions CFD Long & Short Positions

• Pay interest at SAFEX + 2 % p.a. (± Prime -2%)

• The holder will receive a synthetic dividend– Dividend is not earned tax

free as a CFD is a derivative contract

– In the case of a Long CFD, a holder of a long contract will be paid an amount equal to the dividend by issuer.

– This is seen as an income and is subject to tax

• You pay a script lending fee of 1.5% p.a. (Min R456)

• Receive interest at SAFEX -2 % p.a.

• The holder is liable for the dividend– Dividend is not earned tax

free as a CFD is a derivative contract

– In the case of a short CFD, a holder of a short contract will have to pay the dividend to the issuer

Pro’s & Con’s of CFD Trading

Advantages

• Low trading costsLow trading costs• No expiry dateNo expiry date• Hedge your current Hedge your current

portfolioportfolio• All the benefitsAll the benefits

Disadvantages

• Gearing & Risk Gearing & Risk • No voting rightsNo voting rights

Comparison with traditional shares

CFD Traditional Equity No physical equity holding

Do not pay UST

No voting rights

Earn synthetic dividends

Physically hold equity

Pay UST of 0.25%

Voting rights

Earn real dividends

Leveraged trading

Settle only collateral (15% - 17.5%) plus top-up if required

Gearing provided at cheap rates (Safex +2% or roughly Prime -2%)

Not leveraged

Must settle full exposure amount

Expensive to borrow against shares

Settlement Period

Settled T+1

Settlement Period

Settled T+5

Taxation

Considered a Trader

Added to personal income

(Trading Instrument)

Taxation

Capital Gains Tax (CGT)

(Investment Instrument)

Easy to short

Suitable for both hedging & trading opportunities

Typically long only

What are SSFs?What are SSFs?A standardised contract.

Of a standard quantity (100) of a specific underlying listed share

Requires a fixed margin deposit to open a position Requires a fixed margin deposit to open a position (around 15% of the total value).(around 15% of the total value).

Expiring on a predetermined future date: Third Thursday of every March, June, September & December.

Gives the owner the right to close the contract at a price agreed Gives the owner the right to close the contract at a price agreed when entering the contract, including all relevant dividends & interest.when entering the contract, including all relevant dividends & interest.

SSFs are listed on the South African Futures Exchange (SAFEX), SSFs are listed on the South African Futures Exchange (SAFEX), a subsidiary of the JSE.a subsidiary of the JSE.

SSF contracts equate to100 shares of the underlying instrument.SSFs are created at the close of trading.

All unmatched SSF orders expire at the end of the trading day.All partially matched orders will be cancelled at the end of the day.

Comparable to EquitiesComparable to EquitiesINVESTOR A (Share Trader) INVESTOR B (SSFs Trader)

Confident that Sasol shares will increase.

Confident that Sasol shares will increase.

She has R35 000 which she can invest.

Sasol’s share price is R350,Sasol’s share price is R350,therefore she buys 100 shares.therefore she buys 100 shares.

3 months later the price has increased by 10%

so she sells her shares to make a R3 500 profit.

Her return on her investment is 10%.

The initial margin set by the broker is R6 000 which

is paid by the buyer.

Sasol’s share price is R350,therefore she buys 1 contract.

After 3 months the price has increased by 10% & the investor

closes out his position & sells out of the

Sasol SSF contract.

His profit is R3 500 but his return on his investment is 58%.

Comparison between SSFs &CFDsComparison between SSFs &CFDs

Single Stock Future Contracts for Difference• Regulated by JSE/FSB• Exchanged traded product• Expiry Date= Rollover costs• Set principle amount• Interest agreed upfront• Wholesale interest rates• Best execution• Free markets• Transparent• Guaranteed by SAFCOM• No dividend paid/received• Fungible financial instrument• Can take physical delivery

• Unregulated

• Trades OTC

• No Expiry Date

• Principle amount could change daily

• Interest fluctuates daily

• Retail interest rates

• No best execution obligation

• Captive markets

• Opaque

• Not guaranteed by SAFCOM

• Manufactured dividends

• Never physical delivered

SSF MarginSSF Margin

Initial margin

percontract

Top 40 –

Central

Next 60 –

Traditiona

l

(Central) SSF Order Book

Top 40 SharesALSI & ALMI

Copper, Gold, Platinum & Silver

WTI Crude Oil


Margin = R27 000Exposure = R270 000 Cost R25 per contract

100 points move = R1000


Future Price = Spot Price X 1 + (IR x t)

SSF Order - Short

(Traditional) SSF Order Book

Swing Trading Strategy• Step #1: What Market Stage?

– Stage 2 or Stage 4

• Step # 2: Elliott Wave Cycle– Wave 2 or Wave B

• Step #3: Trading Trends– Uptrend = Higher Highs & Higher Lows– Downtrend = Lower Highs & Lower Lows

• Step #4: Trader’s Action Zone (TAZ)– Buy Pullbacks & Short Rallies

• Step # 5: Swing Points – Entry – Swing Points Low (SPL) – Bullish Candlesticks– Exits - Swing Points High (SPH) – Bearish Candlesticks

Swing Trading Strategy (Cont.)• Step #6: What Candle Stick Pattern?

– Bullish Candle Stick Patterns– Bearish Candle Stick Patterns– Neutral Candle Stick Patterns

• Step # 7: Money Management– Position Size

• Step # 8: Risk Management– Technical Stop Loss level

Step #1: What Market Stage?

Long Long ShortShort

Step #1: What Market Stage?Anglo (AGL)

Stage 2 or Stage 4?

Stage 1

Stage 3

Stage 4

Stage 2

Stage 1

Stage 2

Step # 2: Elliott Wave CycleStep # 2: Elliott Wave Cycle

Step # 2: Elliott Wave Cycle Step # 2: Elliott Wave Cycle Anglo (AGL)

Wave 2 or Wave B?

Wave 1

Wave 3

Wave 4

Wave 2

Wave A

Wave B

Wave 5

Wave C?

Step #3: Trading Trends

Trade Trade TrendingTrendingMarketsMarkets

Step #3: Trading TrendsMoving Averages (Long & Short) Moving Averages (Long & Short)

Step #4: Buying Pullbacks (TAZ)

Step #4: Shorting Rallies (TAZ)

Step #4: Buying Pullbacks (TAZ)

Step # 5: Swing Points (Entry & Exits)

Step # 5: Swing Points (Entry & Exits)

Swing Point Low (SPL) Swing Point High (SPH)

Step # 5: Swing Points Lows (Entry)

Secondary Technical Indicators

• Secondary Technical Indicators– OB/OS– Momentum– MACD– RSI– Stochastic

• Volume Analysis• Relative Strength Analysis

It must be remembered that no indicator should be used alone.

Overbought / Oversold (OB/OS)Overbought / Oversold (OB/OS)

OB/OS = Price - MA x 100% MA

Oversold – Buy Zone

Overbought – Sell Zone Overbought – Sell Zone

Momentum IndicatorMomentum Indicator

Momentum = Price A - Price B x 100% Price A

OversoldOversold

OverboughtOverbought

OB/OS & Momentum Indicators

RSI IndicatorRSI Indicator

Overbought

Oversold

Bearish Divergence

RSI =100- {100/ 1 + (U/D)}

14 = UP = 10014

14 = Down = 014

Stochastic IndicatorStochastic Indicator

Sell ZoneSell Zone

Buy Zone

Stochastic = Close - Low x 100% High - Low

BuyBuy

SellSellSellSell SellSell

14 = Hi = 10014

14 = Lo = 014

RSI & Stochastic IndicatorsRSI & Stochastic Indicators

Bearish Divergence

MACD Indicator (OB/OS)MACD Indicator (OB/OS)

Overbought

OversoldOversold

MACD – Crossovers (Trigger Line)MACD – Crossovers (Trigger Line)

MACD – Crossovers (Zero Line)MACD – Crossovers (Zero Line)

MACD – DivergenceMACD – Divergence

Early Warning: Change in

trend

Bullish Divergence

Volume AnalysisVolume Analysis

???

Volume AnalysisVolume Analysis

Low volumes volumes

Indecisive

ConsolidationMarket Bottoms

Low volumes

High volumes

New Trend

High volumes

Market Tops

OBV IndicatorOBV Indicator

VPT IndicatorVPT Indicator

OBV & VPT Indicators OBV & VPT Indicators

Volume Distribution

Neutral Volume

Volume Accumulation

Relative Strength Indicator

Under-perform

Data 1 = AngloData 2 = Top 40 Index

Market Perform

Out-performUnder-perform

Relative Strength IndicatorRelative Strength Indicator

Data 1 = AngloData 2 = BHP Billiton

Under-perform

Outperform

Outperform

Technical Check ListTechnical Check List• What is the direction of the JSE Overall Index?• What is the direction of the Sector Index?• What are the weekly/ monthly sector /share charts showing?• Are the primary, secondary & minor trends up, down or sideways? • What are the important support & resistance levels? • Where are the important trend lines & channels?• Where are the 33%, 50% & 66% retracement levels? • Are there any price gaps, and what type are they? • Are there any major reversal patterns visible?• Are there any continuation patterns visible? • What are the price objectives from these patterns? • Which way are the moving averages pointing?• Are the oscillators overbought or oversold? • Are there any divergences apparent on the oscillators?

Make Quick DecisionsMake Quick Decisions

BUYBUY

HOLDHOLD

WATCHWATCH

SELL

Make Quick DecisionsMake Quick Decisions

WatchWatch

Creating a Watch List of WinnersCreating a Watch List of Winners

Fundamentals = PSG Online website

Technicals = Wen Charting*

Hi-Liter Scanner (Step 1:Criteria)Hi-Liter Scanner (Step 1:Criteria)

Hi-LiterCriteria

Hi-Liter Scanner (Step 2: Results)Hi-Liter Scanner (Step 2: Results)

Hi-LiterResults

Hi-Liter Scanner (Step 3: Confirm)Hi-Liter Scanner (Step 3: Confirm)

ViewChart

Summary: Technical AnalysisSummary: Technical Analysis• Price Charts

– Closing Line Charts – Bar Charts– Bar Volume Charts– Point & Figure Charts– Candlestick Charts

• Cycle & Trend Analysis– Support & Resistance– Trend Lines

• Breakout Trading– Continuation Patterns– Reversal Chart Patterns

• Swing Trading Strategy– Market Stage – Elliott Wave Cycle– Trading Trends– TAZ– Swing Points

• Technical Oscillators– OBOS & Momentum– RSI & Stochastic– MACD

• Volume Analysis– On Balance Volume– Volume Price Trend

• Relative Strength

"The most important thing is

money management,

money management,

money management.

Anybody who is successful will tell you the same thing."

Marty Schwartz

The 3 M’s - Money Management

"Do not focus on making money;

focus on protecting what you have.”

…Paul Tudor Jones

The 3 M’s - Money Management

Capital allocation (Position sizing)

For each trade, how much of our capital do we commit?

– Trade with 50% of total capital (Earn interest & Variation Margin)

– Position Size - Number of Contracts/ Shares

Setting stop losses

For each trade, where do we place our stops?

– Initial Technical Stop (Support & Resistance)

The 3 M’s - The 3 M’s - MMoney oney MManagementanagement

MMoney oney MManagement anagement Position Size & Margin (Harmony)

• You decide to buy Harmony Gold at R80.10• You set a 3% stop loss (R80.10 x 3% = R2.40 )

– R80.10 – R2.40 = R77.70• You are willing to risk 2% of your capital = R2000. • Take R2000 & divide it by the R2.40 per share that you

are risking • Your position size = you can buy 833.33 shares

– (R2000 / R2.40).• The SSF initial margin required is R1387.50

– 833 shares = 8 contracts = R1387.50 x 8 = R11 100– Exposure = 8 x 100 x R80.10 = R64 080.00

MMoney oney MManagement anagement Position Size & Margin (Anglo)

• Assume you have a R100 000 CFD trading account• You decide to buy Anglo’s at R339.05• You set a 3% stop loss at R328.88

– R339.05 x 3% = R10.17 (R339.05 – R10.17)

• You are willing to risk 2% of your capital if the trade goes wrong = R2000.

• Take R2000 and divide it by the R10.17 per share that you are risking.

• That gives your position size. – In this example, you can buy 196.66 shares (R2000 / R10.17).– Margin = 197 x R339.05 = R66 792.85 x 15% = R10 018.93– For SSFs, the initial margin will be R5700 x 2 contracts

= R11 400

CFD Order Book

Buy 100 Anglo shares @ R339.05

Exposure = R33 905.0015% Margin = R5 085.75

100 Anglo shares = R33 905.000.4% Brokerage = R135.62

14% VAT = R18.99Total = R154.61

R305.15

R33 905 x 6.5% = R2203.83/365 = R6.04

RiskRisk MManagement anagement The Stop-Loss StrategyThe Stop-Loss Strategy

• The spot that represents maximum loss that you will take on a trade.

• Original trade idea was incorrect. • The market tells you when it reaches the stop

loss point. • Cut your losses & move on.

RiskRisk MManagement anagement Technical Stop-Loss Strategy

• The stop-loss comes from the chart.

• It is the first thing one needs to know about any particular

trade.

• Can decide how many contracts to trade so as not to exceed

the maximum loss per trade he has determined in the trading

plan.

• First step to following your stop.

– Have a contract size you can live with.

• Placed at a logical point on the chart

– Breaking of a support or resistance level

– Breaking of a trend line

• Highly recommended because the chart “tells”

you where to place the stop.


Step 1: Setup Price (Trigger)

Select “Below”

for Longs

EnterTechnical

Price

Select Price Watch

Setup the Stop Order (Bullet)

Select “Close”

EnterQuantity

EnterWorse-case

scenario price

Select StopOrder

Click Submit Price Watch & Stop Order

button

Summary: TradingSummary: Trading

• Step 1: Financial objectives

• Step 2: Watch List of potential winners

• Step 3: Mindset

• Step 4: Method of Trading

• Step 5: Money & Risk Management

“Many know, few do”

Justin Cohen Justin Cohen

ConclusionConclusion• Have you learnt how to “Make Money?”Have you learnt how to “Make Money?”• Feedback FormsFeedback Forms• Link to MarketWorx presentations Link to MarketWorx presentations

– Will be available soon!Will be available soon!• Open a Trading Account with PSG OnlineOpen a Trading Account with PSG Online

– Online Trading Course Online Trading Course – Equity & SSF SimulatorEquity & SSF Simulator– Research ToolsResearch Tools

• DataShare Download @R169 p/mDataShare Download @R169 p/m– Software is FREE!Software is FREE!

• Good Luck & Happy Trading!Good Luck & Happy Trading!

Thank [email protected]

(011) 996 5200(011) 996 5200

mailto:[email protected]

marketworx: technical analysis & trading shaun van den berg 11 october 2011

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