Lessons learned from other traders

1.) Lessons learned from Tuesday's CAF

David Hanson pointed 2 very good things to ponder when trading. For those who were not able to attend the CAF last week let me share to you those things, probably not the way he told it, but how I understood it and how it stuck into my mind.

Trade Confidently and Cautiously!

This was an advice David got from a fellow trader (forgot his name): Trade Confidently and Cautiously!
Trading confidently definitely saves you form having second thoughts during trading. For my case, usually second thoughts is one of the reason why I'm either shaken out of a good bullish move or dilly-dallying when to sell on a bearish move. The fact that I had second thoughts means I don't have a very good basis for executing a trade and so I wasn't trading confidently.

While confidence is important in trading, the other side of it, trading cautiously is just as important. Riding the break out or bull run without knowing your possible exits points or "plan B", is just too much confidence, without caution.

Make a business out of your trades

David also suggested to treat trading as if it is a business. Just like in putting up a business, you gotta have a business plan, and for trading, you definitely must have a trading plan.

Just sharing a thing that also stuck in my mind: The usual advise given when attempting to expand a business is to create a system that can be replicated. From my experience, I attempted to grow my trading "business" by increasing my fund. The problem that I encountered was that I didn't have a system that can be replicated in a different scale. The trades that I did in a small scale did not work well when I increased my fund. So creating a system that I could replicate is still a challenge for me. For now, I went back to having a small fund because that is what works well for me for the mean time.

2.) The Double Support Trailing Stop

I also came across a post from nix's blog Lone Voice (http://fromlonevoice.blogspot.com/) about "The Double Support Trailing Stop" by Rob Hana (http://quantifiableedges.blogspot.com/).

I find the post very informative, specially if you need to create a system for trading. It converts your "when to sell" gut feel in a bullish move into a replicable action. And since its replicable, you can back test it to see if it fits you.

StockWatch (Feb 25-29, 2008): PSEi, RLC, MEG

PSEi (Chart: Daily Resistance: 3170/ 3320 Support: 3000/2950)

The initial descending triangle formation that was spotted last week was broken down on the first day of trading but was able to recoup the loss and successfully close above the support line of 3170. However the support at 3170 was short lived as the index broke down last Friday with a huge spread. The TP for the breakdown is around 3000, which is also a psychological support. The next support is at 2950, the previous low. The interesting part is that if support at 2950-3000 holds, then the index is a possible candidate for a double bottom, a reversal indicator from the recent decline of the stock market from October 2007, but ofcourse this remains to be seen. The bad part of it is that if support doesn’t hold, and proceeds to takeout the support at 2870 from the previous low of August 2007, then we have ourselves a grim picture of a breakdown from a double top, but judging from the RSI level, I think the grim picture of a breakdown from a double top would be very small as the index is still currently near oversold level. For now, the trading strategy would be more of staying on the sidelines until a bounce happens. Keep watch also for other stocks that might be forming a double bottom, a falling wedge pattern or showing signs of a bullish divergence.


RLC (Chart: Daily Resistance: 12/14.50 Support: 11.25/10.50)

RLC is one of those stocks that are displaying a double bottom formation. Looking at its past movement, we can see that it has formed a H&S formation from Sept-Dec of 2007. It brokedown from this formation by the second week of December and has since been moving downwards. The target price of the breakdown from the H&S formation has been reached at 11.25 and was able to rally back to a high of 14.50 before moving downwards again. Currently, it seems that this stock might be forming a double bottom assuming that support at 11.25 holds. If support at 11.25 is broken, the next support is at 10.25 which is the support line extending from Aug 2007 up to Jan 2008. If it bounces from this support line, watch out for a bullish divergence formation for the MACD and RSI. As of the moment, both of the indicators still has the possibility of forming a bullish divergence. If it does bounce from support at 10.50, this gives more credibility to a possible falling wedge formation with resistance at around 12. For the bottom fishers, 10.50 would be a better level to get in and cutting immediately if it goes below 10.

MEG (Chart: Daily Resistance 2.44 Support: 2.20/1.90)

MEG is also one of those stocks that may be displaying signs of bullish divergence. Looking at the previous movements, the stock brokedown from a symmetrical triangle (or could also be a H&S formation) last Jan 2008 and has since been moving downward. From mid January, the price action moved sideways and as of last Friday it has recently broken down again from the sideward channel. Considering the symmetrical triangle where it initially brokedown from, it has now reached the TP of 2.20. But considering the sideways channel where it recently brokedown, we can still see further possible downward movement down to the 1.90 level. As of current this is a candidate for a bullish divergence as the price has formed a lower low, while the MACD and RSI is still way too far from creating lower lows, which means there is a higher possibility for the MACD and RSI to form a higher low. We can confirm the bullish divergence by an MACD crossover of the signal line.

In Retrospect: JFC

JFC

The breakout from the small downward channel for JFC was a bull trap. The price moved lower than the support to as low as 46.50. It is currently approaching another support level at 46. If support at 46 holds, then we might be able to see a pull back towards 48-50. The possible H&S and ascending triangle formation is still intact, so this stock still has hope, but not for now, we’ll just have to wait till the 52.50 resistance is broken.

Trading Blogsite: Lone Voice by Nix

Here is another trading blogsite that I frequently visit, titled Lone Voice(http://fromlonevoice.blogspot.com/) by Nix.

Read more, learn more!

ATCSI’s February CAF:An Absolute Date with the Philippine Stock Exchange

Absolute Traders will be having their monthly CAF this Feb 19 titled: An Absolute Date with the Philippine Stock Exchange.

Click on the link for more details.

http://www.absolutetraders.com/content/view/334/

StockWatch (Feb 18-22, 2008): PSEi, JFC

PSEi (Chart: Daily Resistance: 3250/3300 Support: 3170)

The index’s chart still doesn’t look good for now. It’s now somewhat dangerously forming a descending triangle with support at 3170. If the index is still unable to move above 3300 resistance, this gives the impending descending triangle formation more credibility. Looking at movement of most stocks, some are still in consolidation while some are still on its downward move. A few have been moving upward and against the prevailing bearish sentiment, so it is more probable that the index might have a hard time moving past the 3300 resistance level. So for now, strategy is still keeping short positions or just staying on the sidelines to be safe. If the descending triangle does materialize, its probable TP is around 3000.

JFC(Chart: Weekly)

JFC (Chart: Daily Resistance: 52.50/53.50 Support: 51/49.50)

JFC had a breakout from a downward channel last week. Considering the small channel formed, the TP is around 56, if the larger downward channel is considered, the TP is around 60. The volume on the break out is very large that comparing the weekly volume, it has surpassed the average weekly volume of around 3-5M shares traded. Now with that large volume, it is suggesting that momentum is starting to pickup with this stock. Looking at the MACD, on the daily chart, we have the MACD moving above the zero line and above the signal line, looking also at the weekly chart we can see that the MACD is just about to move above the signal line, both suggesting a very positive outlook for this stock. As of current 52.50 is a resistance that needs to be taken out, then afterwards 53.50. If the stock surpasses the 53.50, it is now out of the general downward move since April of 2007. Possible area patterns forming are ascending triangle and a head and shoulder formation, both having a resistance at 52.50 and possible TP of above 60. It is possible that the price action may re-test the resistance-turned-support line at around 49.50-50.00. For those who can absorb the risk, you buy near support at 50, cutloss it if goes to 49. Or for those who are risk averse, buy on break of the 52.50 resistance.

In Retrospect: EEI, CMT

EEI

EEI took a breather for this week and traded between 3.25 and 3.60. There was only 1 day when the stock was sold down and on the rest of the days, the stock was bought up. This just indicates that a lot are still bullish with this stock. With such a momentum moving upward, I am somehow expecting for stock to form a pennant or flag formation. The price action last Friday saw the stock move from 3.35 to a high of 3.60 which suggests a breakout from a flag formation. However, the volume in my opinion is just average, relative to the volume of the previous days which is not very much a good breakout volume. If the stock proceeds to move higher for next week without a good volume of above 5M shares traded, this means the stock may be nearing its exhaustion level. Watch out for the price level of 3.80 to 4.00, the stock may find it hard to move past that level if the volume is still thin on its upward moves.


CMT

CMT also took a breather for last week and traded between 0.91 and 1.02. The sideward movement is perfect for a flag formation. A breakout is still to be seen so watch out for this. A good break out volume would be around 10M shares traded

StockWatch (Feb 11-15, 2008): PSEi, EEI, CMT

PSEi (Chart: Daily Resistance: 3330 Support: 3190/3120)

The resistance line at 3330 held last week, preventing the advance of the index. Nothing much happening on the index, probable trading action for next week will still be sideways to downward movement. It may however trade within a small triangle bounded by the resistance line and the long standing support line from 2006. We are still in bearish territory for the MACD so trading strategy would still be keeping short positions.

EEI (Chart: Daily Resistance: 3.55 Support: 3.00/2.80 )

The long wait had paid off for EEI, the stock bounced from its low of 2.34 reaching a high of 3.55. The stock is very bullish that it consecutively closed higher for the whole week and accompanied by large volume. Looking at the chart, it has just recently broken a resistance line formed from its recent downward move. The resistance line was broken with volume, so this definitely suggests that this stock is now out of the downward move. However, last Friday’s trading is suggesting that the recent bullish move for this stock is now encountering some resistance. The stock definitely has the potential of moving towards near 4.50 level, but it needs to take a breather from the bullish move. So expect the stock to probably move sideways to downward, trading between 3.55 and 3.00. Watchout for the volume on the downward move, low volume on the downward move is good for this stock, but increased volume on the downward move means that a lot are starting to dump this stock. If you had this at the low of 2.34, it would be best to sell a portion of the stock and buy back near 3.00.

CMT (Chart: Daily Resistance: 1.02/1.12 Support: 0.84)

CMT had a bullish run last week, similar to EEI. It consecutively closed higher with volume and on the last trading day, it gapped up with large volume. An area pattern of a falling wedge seems to have formed and the stock has broken resistance at 0.86. This stock has an upside TP of 1.45. Resistance levels along the way up are the Fibonacci retracement levels of 1.02 (50%) and 1.12 (61.8%). Buying at 0.99 is still ok and with-in the 1:3 risk to reward ratio. However, RSI is indicating that this stock is near overbought so it is still possible for this stock to move downwards re-testing support at 0.84. Again watch out for downward movement with large volume as this may indicate that traders are now dumping the stock. MACD for this stock is still below the zero line, so trading strategy for this stock is to hold for the short term only.

In Retrospect: GLO, EDC, MBT

GLO

GLO gapped up on the first trading day last week with above average volume. However on the following day, the stock was sold down with almost the same volume as when it gapped up. On the succeeding trading days, the stock was sold down. This just implies that the stock is not yet out of consolidation. The good side of this stock technically is that the MACD is still above the zero line and above the signal line and the 3 MA’s are in its bullish order, so this stock is still bullish for now even if it is still consolidating. Another good thing about the stock is that it is still able to close above the resistance-turned-support line. The crucial part for next week is observing if the stock will still be able to close above the resistance-turned-support line at 1530. The not so good side of this stock is that it has been in consolidation for around 4 months. Next support levels are at 1520, 1495, 1475. If you intend to trade the range for this stock, a good buy will be near support at 1495-1475 and sell at around 1600, this will give you a good 5-7% net profit.

EDC

The resistance line at 6.30 was able to hold the advance of this stock, so this means the stock is not yet out of the downward move. It is possible that this stock is now starting to consolidate between 5.50 and 6.30.

MBT

No break-out from the falling wedge for this stock. The price movement just went sideways. The volume on the sell down on Jan 31 was just equaled with the volume on the gap up on the first trading day, but the succeeding trading days that followed had lesser volume. The bullish divergence was formed, but there are not enough other good indicators to back this up. Still, watch out for the downward TP of the H&S at 31.

StockWatch (Feb 04-08, 2008): PSEi, GLO, EDC, MBT

PSEi (Chart: Daily Resistance: 3330 Support: 3120)

The index encountered resistance at around 3100-3300 level, trading was characterized mostly with short bodied candles with long wickers. Currently, the index was able to reach the resistance line and closed just below it. Expect trading next week to move sideways to downward. Support currently is around 3120.

GLO (Chart: Daily Resistance: 1610/1675 Support: 1495/1465)

GLO had a breakout from the symmetrical triangle, however, the volume was not that sufficient to consider a good breakout. Watch out for upward moves with low volume, this indicates weakness of the upward move.

EDC (Chart: Daily Resistance: 6.30/6.70 Support: 6.10/5.70)

EDC gapped up last Friday with large volume, however, there was no area pattern involved in the gap up. Currently, it was able to move past the 260day MA with volume and looking at the weekly chart, the stock has been moving upward for the past two weeks with sufficient volume which suggests there is strength in its upward move. As of current 6.30 is a crucial resistance to observe, this is the resistance line formed during the stock’s downward move and at the same time the 50% Fib retracement level. If it is able to move past this resistance line with volume, then this suggests that the stock is now out of the recent downward movement. Also watch out for resistance the Fib retracement level 6.70 (61.8%).

MBT (Chart: Daily Resistance: 43/47 Support: 39.50)

MBT broke down from an H&S pattern with a downward TP of around 31. Currently, the stock is showing signs of bullish divergence; however, this is not yet confirmed as the trough for the RSI and MACD is not yet fully formed. Also a falling wedge is forming with a possible TP of around 55. If traders are bullish with this stock, the downward TP of the H&S may not be reached and it is possible for falling wedge breakout. For now just wait for the breakout from the falling wedge or the confirmation of the bullish divergence. Falling wedge breakout is at 44.

In Retrospect: EEI, TEL

EEI

EEI continued to move sideways for the past week. However there seems to be a small light of hope last Friday with the stock gaining around 3% and volume of around 4.8M shares traded. If the stock is able to gap up with more than 4M shares traded, this is a sign of strength for the stock and a formation of an island reversal.

TEL

TEL was able to significantly create another gap up on the second day of trading last week and as expected, resistance at 2900-3000 level was encountered. There will probably be profit taking for the coming week. If the support at 2905 holds for next week, then the stock might be good for another climb probably towards 3200 level.