the truth behind price plungesasx ltd sold 32.2 million shares worth $385 million in iress to...

March 2nd, 2019 A publication of Guppytraderscomsg Pte Ltd since 1996 CRN200409379K. Copyright © 2015

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Weekly for Saturday March 2nd, 2019. Based on Thursday’s Close

CONTENTS

THE TRUTH BEHIND PRICE PLUNGES pg1 ADDING TO WINNING TRADES pg4

CATCHING THE TRAIN pg5 OIL TESTING RESISTANCE FEATURES pg11

NEWSLETTER OUTLOOK: TREND TARGETS pg12 PORTFOLIO CASE STUDIES: MONEY MANAGEMENT pg13

THE TRUTH BEHIND PRICE PLUNGES

It’s never a level playing field when it comes to stocks. On Monday afternoon ASX Ltd sold 32.2 million shares worth $385 million in IRESS to investment bank UBS. This sale was not at the market price of $13.06. This is called a Block Trade. UBS

quickly went to fund managers and on-sold this ‘block’ or shares at a reported 8.5% discount to the current price.


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This sale at 8.5% discount was at around $11.95. This sale DOES NOT appear

on the price chart on Monday because it is only reported to the market on Tuesday. We think these sales should be reported in real time to ensure the market is

fully transparent. This failure to report is a type of inside trading in that some parties

know and act on market and price sensitive information before it’s available to the rest of the market.

The market does not ever give a level playing field. Investors who think they can access information on a level playing field are deluding themselves. We must


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trade what we see on the charts and be prepared for the impact of legalised forms of inside trading.

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 $54,054.97 or 54.1% 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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ADDING TO WINNING TRADES By Louise Bedford

When I was a little girl, my sister and I raised the skill of building card houses

to an art form. Each day we would try to outdo our previous record. Sometimes we would succeed in creating the ‘Taj Mahal’ of card houses that would practically

withstand an earthquake (in our minds at least). Other times, we could barely make it past 2 levels.

The method that I learned all those years ago is exactly the same as the

technique that I use in trading to add more capital to a winning position. Let’s review some of the major success factors when pyramiding into a trade, or building card

houses.

Don’t go to high

Unless you are aiming to enter the Guinness book of records for card house building, three layers will usually be enough. With trading, if you pyramid more than

three times, usually your position size will grow to be too large in relation to your trading equity. This does not represent effective risk management.

Don’t go too quickly Wait until your trade is at least profitable before attempting to add money to it.

Set your pyramid points slightly above a level of previous resistance, and above a round dollar figure. This suggests that the share must bullishly break through a

psychologically significant price, prior to you showing continued faith in the upward potential of the stock.

Make sure each layer is smaller than the previous one The strongest card houses have a firm foundation. If you are used to position

sizing in trading based on percent risk, you could follow a method that looks like Figure 1.1.

If you are used to adding fixed dollar amounts to your trades, you could use

this diagram to signify units. For example, you may commit $10,000 to a position. The next position could be $5000, and the final position $2500.


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Never average down If the card house is looking shaky, don’t add more cards. If the trade is not co-

operating, don’t throw more money at it. Averaging down means adding more money to a losing position. It doesn’t

work… and I can prove it to you. Let’s say that you decided to buy 500 shares at $15.00. Imagine that the share price drops, so in your infinite wisdom, you decide to buy another 500 shares at $12.00. As the share price dropped further, you also

decided to buy an extra 500 shares at $10.00. After all of this your average price would be $12.33. Now you own 1500 shares in a stock that is down trending.

(Congratulations, you must feel very proud.) Instead of buying more of this down trending share, it would have made more

sense to exit at your initial stop loss of $14.00 and capped your loss at $500 ($15.00 - $14.00 x 500 shares). To contain your loss to only $500 after you have averaged down, the share has to trend from $10.00 back up to $12.00. How likely is a share

price increase of $2.00 or 20% when the share is already in a confirmed downtrend? This is a very unlikely event in the near future. This is why averaging down doesn’t

work. The more times you average down the greater the commensurate increase by the share price is required in order for your total position to break-even. Only add money to a winning position, or suffer the consequences.

Unfortunately, most traders do not have a clear idea about how to pyramid effectively, and they end up devastating their own trading results, even if they have

correctly identified the trend. If you follow these suggestions, pyramiding, and building card houses, will be so much more effective for you.

Louise Bedford (www.tradingsecrets.com.au) is a full-time private trader and

author of The Secret of Writing Options, The Secret of Candlestick Charting and Trading Secrets.

CATCHING THE TRAIN By Daryl Guppy

There are three main approaches to trade entry. The first, and most difficult, is to enter in advance of a breakout from a downtrend. This is devilishly difficult and has a high failure rate. It is also the entry point most sought after by traders. Excellent

stop loss discipline is required because the failure rate is very high. The second entry point is as close as possible to the point where the downtrend

breakout occurs. This is more difficult than it sounds. There is a temptation to time the entry and get the best historical price. Breakouts are not guaranteed and the

failure rate in this approach is quite high. Tight stop loss discipline is required.


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The third entry point is the wait for evidence that the breakout has developed. The choice is to either join the trend at any point or join the trend after a small pullback. The key danger here is a sudden collapse of the uptrend. This used to be

rare, but it is now quite common.

Trading this trend continuation – catching the train after its left the station – is

an effective method. It surrenders early profits available in the trend breakout but compensates for this with a lower rate of failure. In a fast rally this is a momentum

trade. In a slower trend it’s a trend trade. The other advantage of this trend trade entry is that they are easier to find. Our

preferred method rests on pre-selected trading pools. Some are selected based on

brokers’ tips and media coverage. Other pools are built from technical scans.


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It does not matter which method you use. The important feature is to identify the entry point and a stop loss method that is compatible with the existing trend. Our preference is to work with stocks that are compatible with 1*ATR trade management.

Compatibility is confirmed when the recent activity of the stock does not generate any false exit signals.

The second important feature is to ensure that the stock offers enough trading

volume to allow you to enter and exit the trade without influencing price. You do not

want to be left high and dry, stranded in the trade because of low volume. This is particularly critical on the exit.

We add three examples on this trading approach.


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AOG The case study AOG is a delayed entry into a strong breakout. Ideally the entry would have been around $1.70 as the breakout developed but, in this example, we

want to show how the established trend is traded. The same methods are applied to QBE and WPL.

Entry is near $2.07. The stop loss uses the 1*ATR and is placed near $1.98.

This puts $869.57 at risk or 0.87% of total trading capital.


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CSR* The case study with CSR is more conservative. The trend breakout is captured

earlier, and the speed of the trend break is slower. The ATR starts from the point of

confirmed GMMA breakout. The same methods are applied to ARB.



OSH

The case study SOH trade is an example of joining a stronger trend breakout. The trend is not as fast as AOG. The entry is made as the uptrend thrust pauses for a

small consolidation.


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We will follow the development of these three case study trades over the next

few weeks.

OIL TESTING RESISTANCE FEATURES By Daryl Guppy

The NYMEX oil price is running into two strong resistance features that limit the upside in the short term. The first resistance feature is historical behaviour. The

second resistance feature is the trend behaviour. Oil has a consistent history of trading in trading bands. These bands form

support levels in a falling market and resistance levels in a rising market. In the

current uptrend the resistance level is near $58. The support level is near $48 and the upside target for any breakout is near $68.

The oil price is currently consolidating just under the resistance level near $58. A breakout above this level faces a second resistance feature which is created by the

activity of investors.

The Guppy Multiple Moving Average indicator is used to understand the activity of traders and investors in the market. The short-term group of averages – shown in

blue - reflects trader activity. This is currently bullish. The short-term group of averages have compressed and turned upwards. This shows increasing trader confidence that a new uptrend can develop.

The long-term group of averages – shown in red – reflect the view of investors. This group of averages remains in a downtrend and has a reasonable degree of

separation. This indicates that investors are not convinced about the chances of a


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trend change. If they were convinced, then the long term GMMA would show signs of compression and also turn upwards.

The current long term GMMA behaviour suggests that investors remain sellers

in this market. They will not join the trader’s bandwagon and push prices higher. As price approaches the historical resistance level near $58 then investors will come into

the market as sellers and trigger either consolidation near $58 or a price retreat. A successful breakout above $58 has an upside target near $68. This trend

breakout will be confirmed by a rapid compression in the long term GMMA.

NEWSLETTER OUTLOOK: TREND TARGETS By Daryl Guppy

The XJO developed a classic consolidation pattern with the index oscillating around the 6120 level. First this level acted as resistance. Then it

acted a support. This consolidation and rebound activity allows for a more accurate placement of the uptrend line.

This is a strong trend with an upside target near 6300. This is a formidable resistance level, so any move above 6300 is very bullish. The support features are the value of the trend line and the value of the lower

edge of the short term GMMA. The index remains clustered along the upper edge of the short term

GMMA. This indicates continued trend strength.


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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. 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 $54,054.97 or 54.1% 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 be construed by any reader as Publisher's (i) solicitation to effect, or attempt to effect transactions in securities, or (ii) provision of any investment related advice or services tailored to any particular individual's financial situation or investment objective(s). Readers do not receive investment advisory, investment supervisory or investment management services, nor the initial or ongoing review or

monitoring of the reader's individual investment portfolio or individual particular needs. Therefore, no reader should assume that the Publisher serves as a substitute for individual personalized advice from a licensed financial professional of the reader's choosing. The decision to trade and the method of trading is for the reader alone to decide. The reader maintains absolute discretion as to whether or not to follow any portion of our content. Publisher does not offer or provide any implementation services, nor does it offer or provide initial or ongoing individual personalized advice. It remains the reader's exclusive responsibility to review and evaluate the content and to determine whether to accept or reject any

strategy and to correspondingly determine whether any such strategy is appropriate for a reader's individual situation. Publisher expresses no opinion as to whether any of strategy contained on this publication is appropriate for a reader's individual situation. The author and publisher expressly disclaim all and any liability to any person, whether the purchase of this publication or not, in respect of anything


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and of the consequences of any thing done or omitted to be done by any such person in reliance, whether whole or partial, upon the whole or any part of the contents of this publication. Neither Guppytraderscomsg Pte Limited nor its officers, employees and agents, will be liable for any loss or damage incurred by any person directly or indirectly as a result of reliance on the information contained

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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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