The Role of Technical Analysis

Bloomberg Technical Analysis Conference

Abraham Investment Management

Past Performance is not Indicative of Future Performance

Disclaimer• The information contained is not intended and should not be construed as investment advice, a recommendation of

any kind, or an offer, or the solicitation of an offer, to buy or sell any securities, including any interest in any Abraham Investment Management, LLC investment product. This information is qualified in its entirety by the more complete disclosures, risk factors, and other terms and conditions that are contained in such offering documents. This information is as of the date indicated, may be estimated and is subject to change without notice. No representation is being made that any investment product will or is likely to achieve its objectives, that its strategy will be successful, or that any investor will or is likely to achieve any results shown or will make any profit or will be able to avoid incurring losses. Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts, commodity options or forex can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results. You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources.

• This presentation might contain references to hypothetical trading results • HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO

REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS

The Bible Of Trend Following- How Professional Traders Compound Money & Manage Risk

This book will be published by Wiley Books

Goal of Our Discussion

• Combine robust trend indicators into a trading system/plan which will determine

• What to buy or sell• How much to buy or sell• When to exit with a profit or a loss

• This trading system is based on risk, which creates consistency and assists us in compounding money overtime when trading with a proper winning attitude.

All Traders Use Some Form of Technical Analysis in Their Trading Strategy

• Technical Analysis provides traders unlimited possibilities with identifiable patterns that are observable , quantifiable and repeat themselves on all time frames & markets.

• But Why isn’t Everyone RICH????

• Most Traders are not successful.

• Too many traders spend too much on just the entries- not the whole trading plan.

Technical Analysis is not the Holy Grail in Itself

• Technical Analysis does not tell you what will happen in the future.

• Technical Analysis cannot predict human behavior, and human behavior is what creates price movement

• You do not need to know the future in order to be profitable.

Technical Analysis is not about Better Analysis

• You can try to eliminate risk by learning about as many market variables or technical indicators as possible however will lead to frustration.

• Can not avoid Risk- You need to accept the risks!

• You must remain disciplined, focused, patient in the face of total uncertainty.

• The only CERTAINTY is UNCERTAINTY!

Long Term Investment Success is comprised of

• Trading Plan comprised of Technical Analysis• Risk & Money Management• Proper Psychology of Winning• Compounding over a long period of time• All of these Can Equal Extreme Wealth overtime

Why You Need a Trading Plan

• Every Contingency Has to be Pre Thought out!• Outlier Events Are Almost Certain to Happen• Most people try to dismiss outlier events.• Most professionals try to dismiss them also.• At Abraham Investment Management expect them!

These Can’t Happen Events But they Did!

• Japanese Stock Market Fell from 39000 in 1988 to today it is 8500

• Nasdaq Stock Index• Enron • WorldCom• Netflix • Crude Oil going from $147 to $34 in 2008

The Trading Plan is Based on Technical Analysis

• You need to know what markets or shares to buy or sell• You need to know how much to buy or sell• You need to know when to get out with a profit or with a loss

Identify What Markets or Stocks You will Trade

• At Abraham Investment Management we look to buy the strongest and look to sell the weakest if we can put on a low risk bet.

• We rank the markets via relative strength & rate of change.

• A low risk bet ranges depending the programs from 50 basis points up to a max of 1.25% of our account size.

Trend Break Out Methodology

• Trend Break out has been traded successfully for decades. • (Turtle Traders Bought the 20 day high…sold the 10 day low.)

• Buys• Buy the X Bar high• Protective hard stop the lowest Y bar

• Sells• Sell the Y Bar low• Protective hard stop the X bar high

Abraham Investment Management Trading Plan Highlights

• Identify the strongest and the weakest markets via • ranking & relative strength with a long bias• When you get a breakout signal, confirm the breakout risk is not more than 1% of

your core account size, if so go to the next step.• Trade only in the direction of the MACD. If long confirm you are above the zero line.

If short confirm you are below the zero line.• Limit your number of positions• Do not take a commodity trade if the dollar risk exceeds $2500 a contract regardless

of account size.• Do not take the trade if you have already allocated 5% of your account already in

that sector.• Do not take the trade if you have already have 20% of your total core equity in open

profits.

Trailing Your Profits

If the trade starts working you need to have the patience to let it work.

• Follow the trade with an Average True Range Stop.

Playing by the Rules– Actually investing is like many sports: You need to play by the RULES!– IF you Don’t Follow the Rules – You will not Win!

• Like soccer…hours of back and forth but the game is won on a few quick scores.

• Like football… hours of gains and losses and a touchdown wins the game in the 4th quarter.

• Like baseball, innings of boredom followed by a few key runs.• What do you expect to happen when they go to a soccer game? • Do you expect to see scoring every minute?

It is All About How You Think

• How do your feel about 5 trades in a row that do not work?

• Do you really believe in the trading plan?• What is your greatest threshold of pain?• What is the worst draw down you

encountered?• What did you do?• No way to avoid Losing trades!

What is the Difference of an Olympic Gold Metal winner

Anyone Can Learn Technical Analysis Just Swinging a Tennis Racquet

• However trading success is only achievable by having the correct attitude.

• Being totally consistent• Accepting the risks• Accepting the uncertainty • Good market analysis & intelligence help but

they do not separate the consistent winners from everyone else.

Our Goal is to Compound Money over Long Periods of Time

• Einstein Called Compounding the Greatest Mathematical Discovery of All Time!

Do You Know Your Compounded Rate of Return?

• If you don't know where you're going, how are you going to get there?

• It is synonymous to having a trading plan. If you do not have an exact trading plan you are destined to fail.

• • Forget about how was last month or last year. Take a long term

perspective. My trading is a lifetime strategy

• My children have 60-70 years of compounding.

• This is how Family offices think!

Compounding of 15% over 10 Years

• Over 10 years you 4 times your money

Compounding 15% over 15 years

Compounding at 15% over 20 Years

• You 16 times your money

Compounding at 25 Years

• You 32 times your money!

These are Not Magical Returns• Abraham Trading Group has been trading since 1988. They have a CAROR of 19.30% and a worst

peak to valley draw down of 31.96%. They have returned over 6,100% over all of these years.

• Chesapeake Capital has been trading since 1988. Chesapeake has a CAROR of 12.86% over these years. Chesapeake’s worst peak to valley drawdown has been 26.66%. Chesapeake has returned over the years 1750%.

• Clarke Capital has been trading since 1996. Clarke Capital Worldwide program has returned CAROR of 15.76% over the years. The worst peak to valley draw down was 26.06%. They have returned over 830% over the years.

• Eckhardt Trading has been active since 1991. The CAROR of Eckhardt is 21.53%. The worst peak to valley draw down was 40.39%. Eckhardt has returned a little less than 5181% over these years.

• Tactical has been trading since 1993. They have a CAROR of 20.65%. The worst peak to valley draw down has been 30.75%. Tactical has returned over the time 3079%.

• These managers are not representative of all Commodity trading advisors

Compounded Rates of Returns• If you had invested $100,000 with Abraham Trading Group in 1988 today

worth today $6,414,558.02• If you had invested $100,000 with Chesapeake in 1988 worth today

$1,700,006.44• If you had invested $100,000 with Clarke Capital in 1996 worth today

$1,203,635.00 • If you had invested $100,000 with Eckhardt in 1991 worth today

$7,295,195.82• If you had invested $100,000 with Tactical in 1993 worth today

$4,271,166.73

• Past Performance is not indicative of Future Performance• These managers are not representative of all commodity trading advisors

The Dentist

Worlds Greatest Investor Warren Buffett’s

• Are You Sure You Want to Invest?

Still Not Overcome 2008 Highs

Close to 50% Draw Downs

Proprietary Account

How Easy it Really Wasn’t

Steep and Ugly Draw Downs

• Account went from $370,000 to $270,000

Long Flat Periods

• What have you done for me lately????

More of Nothing Happening

Summation

• Technical Analysis + • Risk Management + • Psychology of Winning + • Time for Compounding of Money• = Potential Extreme Wealth

• We would welcome the opportunity to speak with you. It is our goal to have well informed clients as it improves the probability of long term success. My aim is to educate and help you achieve your investment goals.

Contacts

• Andrew Abraham• Andrew@AbrahamCta.com• Tel US 954 903 0638• Tel Intl 972 54 319 4101

Skype -Abraham Investment Management • Website www.AbrahamCTA.com