Another strong move on the T40 with little indications of the potential momentum slowdown we mentioned yesterday. Price broke the 43,400 resistance (now support) level with the next potential target being around 44,500 (38.2% retracement) . The little inverted head and shoulders highlighted yesterday also looks to be playing out well.
However, although its still looking solidly bullish and is not overbought yet, it is worth noting that the stochastic is approaching overbought territory and that price is now in the "sell zone" between the descending 21 day EMA and 89 day EMA with the longer-term trend remaining bearish.
So at this stage we do view this move as a price retracement in a downtrend with the market continuing to paint lower lows and lower highs. What's key here is for the 43,400 level to hold. A breakdown at this point could see the previous swing low at 41,500 come into play with further downside to 40,000 with that big head and shoulder pattern we highlighted a while back still lurking in the background.
But for the purposes of the now, we will use the 43,400 as the key level and trade around it on an intraday basis with a long-bias above it and a short bias below it.
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Following stop closes on AGL (20 days/1.3xR loss/0.5% capital loss) and TBS (16 days/0.5xR loss/0.4% capital loss) intraday, our open portfolio position moved slightly positive on the day and closed with some 4.4% open downside risk exposure at a potential reward-risk of 2.2-1.
No new setups triggered on the day. On SOL the price just took off to the north not triggering our setup and with the chart now looking as if it could have double-bottomed, we'll not take any trades for now. In fact we may consider going long on a retracement - but that's for a later time. BAT we unfortunately set our entry retracement order a bit too low as price never came back that deep before taking off and hitting the first target we set by the end of the day. So our trade setup on that one has also been negated.
We have however identified 2 new setups to look at trading today:
KIO remains in a clear down as can be seen with the 21 day EMA well below the 80 day EMA. With the retracement to at or around the 38.2% level over the past week, the stochastic has moved into overbought territory while falling well short of the previous high (as indicated by the dashed red line). With a fairly long-wicked candle forming yesterday, there could be a potential reversal on the cards but this would only be confirmed on a break below previous structure swing low as indicated. So our setup is to enter on a break of that level with an entry target of R31.00 and downside targets of R24.50 and then R20.00. This would yield a blended target reward-risk of 2.2-1
OCT is not one we've traded before but it's generated a 3LB short setup with an entry zone between R19.72 and R20.26. Stop is a close above R21.00 and downside targets are R18.44/R17.16 and R16.52.
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28 January 2016
Today saw the tightest high-low range on the index for this month so despite the bullish candle the stochastic is starting to flatten slightly as momentum wanes.
There is however an interesting mini-inverted head and shoulders potentially showing as indicated on the support and resistance chart and a break through the neckline at around 42,900 could give the market the impetus to break the 43,400 overhead resistance level as it projects upwards towards the 44,500/61.8% retracement level we've been commenting on this week.
So again until we get a signal to the contrary, the bulls appear to have the short-term lead and we'll look to take advantage of any upside intraday setups at 100% of acceptable risk capacity while capping downside moves at 50%. All of the above subject to the support and resistance lines we've been playing to this week.
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The CFD portfolio moved slightly positive on the day and closed with some 4.6% open downside risk exposure and a potential reward-risk of 3.5-1. This allows us some further capacity to broaden our portfolio and we've picked up signals on SOL (short) and BAT (long) which we'll look to take advantage of tomorrow:
The weekly chart of SOL reflects the downtrend the stock has experienced since peaking in mid-2014. To be fair its been range-bound in a relatively wide-range over the past year but what we can see is that the stochastic rallied from oversold but then failed to cross above 50 before breaking back down below its signal line. This together with the downward sloping 21 week and 89 week EMA's means that we will favor a short position.
The daily chart shows how the recent rally has pushed the stochastic into overbought territory where it's starting to flatten out. With a relatively long wick forming on the candle around the 61.8% retracement level, this looks like an opportunity to get into a short position at around current levels.
On the support and resistance there's a level of lateral overhead resistance coming in around the R420.00 level and also some potential minor downward sloping resistance joining the previous highs.
With this being quite a choppy stock, we'll look to enter on a break below R402.00 (previous day low) and we're going to set a fairly wide stop as a close above R420.00 looking to ride it down towards the R360.00 level as an initial target. We're also eye-balling this Traders Corner setup to potentially exploit further downside should it materialise. Our initial target reward-risk will be around 2.3-1.
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The setup on BAT is a 3LB setup. It's a bit odd looking with the choppiness the stock has been experiencing of late but with the 21 day EMA above the 89 day EMA it remains systematically valid with an entry zone between R155.37 and R153.14, a stop as a close above R150.91 and upside targets at R159.83/R164.29 and R166.52
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27 January 2016
After initial weakness the market came back strongly towards the end of the day eventually painting a long-tailed bullish candle. The stochastic also continued to rally as expected but its going to be interesting to see how far this momentum can be carried as the stochastic is outpacing price growth to the upside which could signal the potential for negative divergence in the next week or so if things start to top out.
Drilling into the price range over the past 2 days, its also interesting to see how the market reversed intraday as noted and then almost closed on a dime at the 61.8% retracement level.
But for now, also looking at the support and resistance chart, the expected bounce is still playing out with the next expected resistance level remaining at 43,400 and then 44,500 as we've noted before.
Our tactical plan remains in place with upside price target caps at the 43,400 and then 44,500 if that level breaks and turns into support and downside targets being capped at the 42,000 support level. We'll also revert to trading 100% of accepted risk per trade levels in both directions for now.
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We don't really have an opportunity it post live intraday setups in this blog, but have decided to add a daily summary on T40 trading for the sake of completeness. The upside run today allowed for 2 x 3LB setups on the long-side ultimately banking a total of 400 points at an average reward-risk of 1.1 x R profit.
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Being short-biased, our CFD portfolio took some strain today on the back of some market strength and more specifically a massive rally in the AGL price. We also managed to take new entries in PPC as per yesterday's setup post as well as SPG as per the setup post from earlier in the week. With both of these positions moving fairly slowly out of the blocks, this also added to some of the downside experienced today. As a result, our overall portfolio has actually seen a decrease in open downside risk to 4.2% with a an increase in potential reward-risk to 3.9-1. With no new setup signals for tomorrow, we're pretty much just going to monitor and manage our open positions with potential close-outs on AGL and TBS as a potential.
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We've all heard of 'buyer's remorse' but as a trader, one of the emotions that very often rears its ugly head is that of 'seller's remorse'. Using the terms very generically in the sense that buying implies opening a position and selling being the closing of a position (so not to be confused with the concepts of going long and going short), what we often come across is that situation where we close a position and then see the market moving strongly in the direction we were originally trading. We don't even have to make a loss in these instances - instead the anguish of profits foregone or more dangerously what we perceive as profits lost can often haunt us for hours or even days after the trade has passed.Assuming our exit was in line with our trading plan, intellectually what we need to do is start to wire our brains into evaluating not the outcome of the individual trade or the outcome of the trade as it could have been but rather the outcome of the last 50 trades, 100 trades, 500 trades as collectives. Its the appreciation from an emotional perspective that every individual trade is in itself meaningless as its just another small step in a lifelong trading journey.
Its not an easy mental and emotional adjustment to make but when you find yourself slipping into frustration in these instances, the first thing to try and do is to observe what is happening. Actually stop, put down the pen and the mouse or whatever is in front of you and say these words: " I observe that I am feeling frustration. The market does not care that I am frustrated. The market is not to blame for my frustration. This frustration is of my own making. I am frustrated because ....." At this point its often difficult to complete the sentence because having acknowledged the problem is of our own making, we struggle to put a truly valid reason to the emotions we are experiencing. But to a large extent just by going through this process we have started the defuse a potentially damaging emotional response. Try it and see!
Despite the market coming off a bit on Monday it was more of a downward meander than the result of any major shift in sentiment with the intraday price action playing out very sluggishly. Consequently, there doesn't appear to be much of a change in terms of outlook versus the views we expressed at the beginning of the week. On the daily chart, the stochastic continues to look bullish on an end of day basis with plenty of headroom to the upside and we're still very much in the zone between 42,000 and 43,400 on the support and resistance chart. On this basis, our intraday game plan therefore remains unchanged as well.
This then leaves the portfolio with 4 open positions and 4.5% downside risk on the table, looking to generate a 2-1 reward-risk. Again, while this is a decent enough state of affairs, we would like to try and bulk things up slightly more, especially on the reward-risk front. With the probability of SPG retracing into an acceptable long order value level for us becoming less likely though, we have also identified a 3LB short setup in PPC which we will look to trade:
Entry zone between R12.00 and R13.00 with a stop as a close above R14.00 and downside targets at R10.00/R8.00 and R7.00
We did manage to trade a very successful 3LB on PPC early last month so looking to see if we can repeat that performance.
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Portfolio-wise, we closed out the T40 end of day short (17 days/0.8xR profit/0.3% capital profit) - as noted in yesterday's game plan - on early strength. Unfortunately we couldn't get the desired entry we were looking for on SPG (also noted yesterday) as the price ran strongly away from us over the course of the day. At this stage the setup remains valid though so we will continue to monitor and will consider an entry if the opportunity presents itself. This then leaves the portfolio with 4 open positions and 4.5% downside risk on the table, looking to generate a 2-1 reward-risk. Again, while this is a decent enough state of affairs, we would like to try and bulk things up slightly more, especially on the reward-risk front. With the probability of SPG retracing into an acceptable long order value level for us becoming less likely though, we have also identified a 3LB short setup in PPC which we will look to trade:
Entry zone between R12.00 and R13.00 with a stop as a close above R14.00 and downside targets at R10.00/R8.00 and R7.00
We did manage to trade a very successful 3LB on PPC early last month so looking to see if we can repeat that performance.
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In our post at the beginning of last week, we highlighted the fact that trading would be tricky over the course of the past week with the bulls and bears tussling for the upper hand. That was pretty much the order of things with a very choppy week playing out as the market consolidated.
In the final summary, the bulls had the final word as we can see on the weekly chart below. After coming close to breaking the late August low, the T40 had a strong rally to end the week - eventually painting a fairly bullish candle with a relatively long tail. The RSI has also managed to start rallying off its low (but not oversold level) and although the weekly stochastic remains pointed downwards, its back in oversold territory.
However, as pointed out last week though, the 21 week EMA still continues to move closer to the 89 week EMA with a negative crossover of those averages pointing to greater downside potential. So the weekly chart is giving us slightly mixed indications but the potential for continued short-term consolidation and at least a further temporary bounce off the swing low appears to be on the cards for the next few weeks - although the sustainability of this potential movement remains questionable while we are below the 45,000 level
However, as pointed out last week though, the 21 week EMA still continues to move closer to the 89 week EMA with a negative crossover of those averages pointing to greater downside potential. So the weekly chart is giving us slightly mixed indications but the potential for continued short-term consolidation and at least a further temporary bounce off the swing low appears to be on the cards for the next few weeks - although the sustainability of this potential movement remains questionable while we are below the 45,000 level
Drilling down into the daily chart, the morning star pattern highlighting the reversal we discussed for Friday played out in textbook fashion and with the stochastic crossing out of oversold territory and moving upwards, it adds further credence to the short-term bullish move over the next few days.
On the daily support and resistance, we can see the bounce playing out with upside resistance at 43,400 and then 44,500.
And finally, we look at the daily 3LB chart where a counter-trend break has just taken place. What this means is that the T40 short position we have had in place over the past couple of weeks will also be covered on further strength.
So on balance, it appears as if the bulls have it in the short-term so our trading strategy will be to weight our intraday positioning on the long side with capped target levels at 43,400 and should that be broken 44,500. We'll also look to restricting downside setups to 50% of accepted risk per trade levels while trading remains above the 41,500 level. We'll continue to re-evaluate this rule-set on a daily basis as the week's trading action unfolds.
Setup details are as follows: Entry zone between R38.34 and R37.46 with a stop in as a close below R36.57 and upside targets at R40.11/R41.88 and R42.77
Finally, something which has been popping up quite frequently, especially in the past week, is the the concept of deleted setups. When intraday trading and depending on the time-frames used (we use 15 minute charts), there are periods of hours and sometimes even days when not a single setup present itself. This can then be followed by periods like last week, where there was a surge in the number of setups which lined up.
The frustration can creep in when despite the number of setups, none or very few of them actually trigger and result in a trading position. Rather than be frustrated, we prefer to take the contrary view and regard deleted setups as hugely positive because they very often prove to be an inherent safeguard in the system to protect against taking losing trades.
Certainly there'll be situations where "if only this candle had closed 2 points higher we would have caught a decent trade" but the reality is that these opportunities will always recur and a missed opportunity is so much better than forcing a trade which ultimately ends up in a loss. So the moral is to trust the tested system, focus on executing 100% in line with planned setups and let the money take care of itself - it will.
On the daily support and resistance, we can see the bounce playing out with upside resistance at 43,400 and then 44,500.
And finally, we look at the daily 3LB chart where a counter-trend break has just taken place. What this means is that the T40 short position we have had in place over the past couple of weeks will also be covered on further strength.
So on balance, it appears as if the bulls have it in the short-term so our trading strategy will be to weight our intraday positioning on the long side with capped target levels at 43,400 and should that be broken 44,500. We'll also look to restricting downside setups to 50% of accepted risk per trade levels while trading remains above the 41,500 level. We'll continue to re-evaluate this rule-set on a daily basis as the week's trading action unfolds.
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With respect to our overall portfolio, our short-side bias in the context of Friday's bullish move did see further value retracement and we also closed out the PAN short position (14 days/1.73xR profit/1.1% capital profit). Even with the opening of a new short position in SUI at R82.10 though, our overall downside risk exposure has reduced to 4%. Our target reward-risk has also grown to 3.02xR. Adding the potential for the T40 short covering which appears likely to be on the cards for Monday, the following long 3LB setup on SPG appears to be coming at an opportune moment to maintain the portfolio depth and also to add some further long-side diversification to the mix:Setup details are as follows: Entry zone between R38.34 and R37.46 with a stop in as a close below R36.57 and upside targets at R40.11/R41.88 and R42.77
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The frustration can creep in when despite the number of setups, none or very few of them actually trigger and result in a trading position. Rather than be frustrated, we prefer to take the contrary view and regard deleted setups as hugely positive because they very often prove to be an inherent safeguard in the system to protect against taking losing trades.
Certainly there'll be situations where "if only this candle had closed 2 points higher we would have caught a decent trade" but the reality is that these opportunities will always recur and a missed opportunity is so much better than forcing a trade which ultimately ends up in a loss. So the moral is to trust the tested system, focus on executing 100% in line with planned setups and let the money take care of itself - it will.
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